We're A Little Worried About Silver Viper Minerals' (CVE:VIPR) Cash Burn Rate

By
Simply Wall St
Published
August 22, 2021
TSXV:VIPR
Source: Shutterstock

There's no doubt that money can be made by owning shares of unprofitable businesses. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

So should Silver Viper Minerals (CVE:VIPR) shareholders be worried about its cash burn? In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. Let's start with an examination of the business' cash, relative to its cash burn.

View our latest analysis for Silver Viper Minerals

When Might Silver Viper Minerals Run Out Of Money?

A company's cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. When Silver Viper Minerals last reported its balance sheet in June 2021, it had zero debt and cash worth CA$5.2m. Looking at the last year, the company burnt through CA$9.0m. So it had a cash runway of approximately 7 months from June 2021. To be frank, this kind of short runway puts us on edge, as it indicates the company must reduce its cash burn significantly, or else raise cash imminently. You can see how its cash balance has changed over time in the image below.

debt-equity-history-analysis
TSXV:VIPR Debt to Equity History August 23rd 2021

How Is Silver Viper Minerals' Cash Burn Changing Over Time?

Silver Viper Minerals didn't record any revenue over the last year, indicating that it's an early stage company still developing its business. So while we can't look to sales to understand growth, we can look at how the cash burn is changing to understand how expenditure is trending over time. The skyrocketing cash burn up 128% year on year certainly tests our nerves. That sort of spending growth rate can't continue for very long before it causes balance sheet weakness, generally speaking. Silver Viper Minerals makes us a little nervous due to its lack of substantial operating revenue. We prefer most of the stocks on this list of stocks that analysts expect to grow.

How Hard Would It Be For Silver Viper Minerals To Raise More Cash For Growth?

Given its cash burn trajectory, Silver Viper Minerals shareholders should already be thinking about how easy it might be for it to raise further cash in the future. Companies can raise capital through either debt or equity. Many companies end up issuing new shares to fund future growth. We can compare a company's cash burn to its market capitalisation to get a sense for how many new shares a company would have to issue to fund one year's operations.

Silver Viper Minerals has a market capitalisation of CA$46m and burnt through CA$9.0m last year, which is 20% of the company's market value. Given that situation, it's fair to say the company wouldn't have much trouble raising more cash for growth, but shareholders would be somewhat diluted.

How Risky Is Silver Viper Minerals' Cash Burn Situation?

On this analysis of Silver Viper Minerals' cash burn, we think its cash burn relative to its market cap was reassuring, while its increasing cash burn has us a bit worried. Considering all the measures mentioned in this report, we reckon that its cash burn is fairly risky, and if we held shares we'd be watching like a hawk for any deterioration. Taking a deeper dive, we've spotted 5 warning signs for Silver Viper Minerals you should be aware of, and 2 of them can't be ignored.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies, and this list of stocks growth stocks (according to analyst forecasts)

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