Will iMining Blockchain and Cryptocurrency (CVE:IMIN) Spend Its Cash Wisely?

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 the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.

So, the natural question for iMining Blockchain and Cryptocurrency (CVE:IMIN) shareholders is whether they should be concerned by its rate of cash burn. For the purpose of this article, we'll define cash burn as the amount of cash the company is spending each year to fund its growth (also called its negative free cash flow). First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

See our latest analysis for iMining Blockchain and Cryptocurrency

How Long Is iMining Blockchain and Cryptocurrency'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. In November 2019, iMining Blockchain and Cryptocurrency had CA$6.8k in cash, and was debt-free. Importantly, its cash burn was CA$39k over the trailing twelve months. Therefore, from November 2019 it had roughly 2 months of cash runway. To be frank we are alarmed by how short that cash runway is! Depicted below, you can see how its cash holdings have changed over time.

How Is iMining Blockchain and Cryptocurrency's Cash Burn Changing Over Time?

iMining Blockchain and Cryptocurrency didn't record any revenue over the last year, indicating that it's an early stage company still developing its business. Nonetheless, we can still examine its cash burn trajectory as part of our assessment of its cash burn situation. From a cash flow perspective, it's great to see the company's cash burn dropped by 99% over the last year. That might not be promising when it comes to business development, but it's good for the companies cash preservation. iMining Blockchain and Cryptocurrency 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 Easily Can iMining Blockchain and Cryptocurrency Raise Cash?

There's no doubt iMining Blockchain and Cryptocurrency's rapidly reducing cash burn brings comfort, but even if it's only hypothetical, it's always worth asking how easily it could raise more money to fund further growth. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. Many companies end up issuing new shares to fund future 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).

iMining Blockchain and Cryptocurrency's cash burn of CA$39k is about 5.4% of its CA$727k market capitalisation. 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.

How Risky Is iMining Blockchain and Cryptocurrency's Cash Burn Situation?

Even though its cash runway makes us a little nervous, we are compelled to mention that we thought iMining Blockchain and Cryptocurrency's cash burn reduction was relatively promising. Looking at the factors mentioned in this short report, we do think that its cash burn is a bit risky, and it does make us slightly nervous about the stock. Separately, we looked at different risks affecting the company and spotted 6 warning signs for iMining Blockchain and Cryptocurrency (of which 4 can't be ignored!) you should know about.

Of course iMining Blockchain and Cryptocurrency 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.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.