Here's Why We're Watching VL E-Governance & IT Solutions' (NSE:VLEGOV) 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. For example, although software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you'd have done very well indeed. 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.

Given this risk, we thought we'd take a look at whether VL E-Governance & IT Solutions (NSE:VLEGOV) shareholders should be worried about its 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). We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

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How Long Is VL E-Governance & IT Solutions' Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at March 2025, VL E-Governance & IT Solutions had cash of ₹455m and no debt. In the last year, its cash burn was ₹625m. That means it had a cash runway of around 9 months as of March 2025. That's quite a short cash runway, indicating the company must either reduce its annual cash burn or replenish its cash. You can see how its cash balance has changed over time in the image below.

View our latest analysis for VL E-Governance & IT Solutions

Is VL E-Governance & IT Solutions' Revenue Growing?

We're hesitant to extrapolate on the recent trend to assess its cash burn, because VL E-Governance & IT Solutions actually had positive free cash flow last year, so operating revenue growth is probably our best bet to measure, right now. We think that it's fairly positive to see that revenue grew 39% in the last twelve months. In reality, this article only makes a short study of the company's growth data. This graph of historic revenue growth shows how VL E-Governance & IT Solutions is building its business over time.

How Easily Can VL E-Governance & IT Solutions Raise Cash?

Notwithstanding VL E-Governance & IT Solutions' revenue growth, it is still important to consider how it could raise more money, if it needs to. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. Commonly, a business will sell new shares in itself to raise cash and drive 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).

VL E-Governance & IT Solutions has a market capitalisation of ₹5.1b and burnt through ₹625m last year, which is 12% 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 VL E-Governance & IT Solutions' Cash Burn Situation?

Even though its cash runway makes us a little nervous, we are compelled to mention that we thought VL E-Governance & IT Solutions' revenue growth 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. On another note, VL E-Governance & IT Solutions has 3 warning signs (and 1 which shouldn't be ignored) we think you should know about.

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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.