Will Boardwalktech Software (CVE:BWLK) Spend Its Cash Wisely?

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. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

Given this risk, we thought we'd take a look at whether Boardwalktech Software (CVE:BWLK) shareholders should be worried about its cash burn. 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. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

View our latest analysis for Boardwalktech Software

When Might Boardwalktech Software Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In March 2021, Boardwalktech Software had US$3.1m in cash, and was debt-free. In the last year, its cash burn was US$3.0m. So it had a cash runway of approximately 13 months from March 2021. That's not too bad, but it's fair to say the end of the cash runway is in sight, unless cash burn reduces drastically. Depicted below, you can see how its cash holdings have changed over time.

How Well Is Boardwalktech Software Growing?

Notably, Boardwalktech Software actually ramped up its cash burn very hard and fast in the last year, by 147%, signifying heavy investment in the business. As if that's not bad enough, the operating revenue also dropped by 6.3%, making us very wary indeed. Considering these two factors together makes us nervous about the direction the company seems to be heading. In reality, this article only makes a short study of the company's growth data. You can take a look at how Boardwalktech Software has developed its business over time by checking this visualization of its revenue and earnings history.

Can Boardwalktech Software Raise More Cash Easily?

Since Boardwalktech Software can't yet boast improving growth metrics, the market will likely be considering how it can raise more cash if need be. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. 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.

Boardwalktech Software's cash burn of US$3.0m is about 11% of its US$27m market capitalisation. As a result, we'd venture that the company could raise more cash for growth without much trouble, albeit at the cost of some dilution.

So, Should We Worry About Boardwalktech Software's Cash Burn?

Even though its increasing cash burn makes us a little nervous, we are compelled to mention that we thought Boardwalktech Software's cash burn relative to its market cap was relatively promising. We don't think its cash burn is particularly problematic, but after considering the range of factors in this article, we do think shareholders should be monitoring how it changes over time. Taking a deeper dive, we've spotted 5 warning signs for Boardwalktech Software you should be aware of, and 2 of them can't be ignored.

Of course Boardwalktech Software may not be the best stock to buy. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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