Here's Why We're Not Too Worried About Acceleware's (CVE:AXE) Cash Burn Situation

Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. Indeed, Acceleware (CVE:AXE) stock is up 300% in the last year, providing strong gains for shareholders. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

In light of its strong share price run, we think now is a good time to investigate how risky Acceleware's cash burn is. For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

Check out our latest analysis for Acceleware

How Long Is Acceleware's Cash Runway?

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. As at September 2020, Acceleware had cash of CA$3.0m and no debt. Looking at the last year, the company burnt through CA$1.2m. So it had a cash runway of about 2.4 years from September 2020. Arguably, that's a prudent and sensible length of runway to have. Depicted below, you can see how its cash holdings have changed over time.

Can Acceleware Raise More Cash Easily?

Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund growth. By comparing a company's annual cash burn to its total market capitalisation, we can estimate roughly how many shares it would have to issue in order to run the company for another year (at the same burn rate).

Acceleware has a market capitalisation of CA$29m and burnt through CA$1.2m last year, which is 4.3% of the company's market value. Given that is a rather small percentage, it would probably be really easy for the company to fund another year's growth by issuing some new shares to investors, or even by taking out a loan.

Is Acceleware's Cash Burn A Worry?

Given it's an early stage company, we don't have a lot of data with which to judge Acceleware's cash burn. However, it is fair to say that its cash burn relative to its market cap gave us comfort. In conclusion, we don't see why investors should be concerned with its cash burn, at least for some time. Separately, we looked at different risks affecting the company and spotted 4 warning signs for Acceleware (of which 2 are potentially serious!) you should know about.

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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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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