We Think Viking Supply Ships (STO:VSSAB B) Can Afford To Drive Business Growth

We can readily understand why investors are attracted to unprofitable companies. Indeed, Viking Supply Ships (STO:VSSAB B) stock is up 191% in the last year, providing strong gains for shareholders. 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 notwithstanding the buoyant share price, we think it's well worth asking whether Viking Supply Ships' cash burn is too risky. 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). The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

See our latest analysis for Viking Supply Ships

How Long Is Viking Supply Ships' Cash Runway?

A cash runway is defined as the length of time it would take a company to run out of money if it kept spending at its current rate of cash burn. When Viking Supply Ships last reported its balance sheet in March 2022, it had zero debt and cash worth kr68m. In the last year, its cash burn was kr63m. That means it had a cash runway of around 13 months as of March 2022. While that cash runway isn't too concerning, sensible holders would be peering into the distance, and considering what happens if the company runs out of cash. The image below shows how its cash balance has been changing over the last few years.

How Well Is Viking Supply Ships Growing?

It was fairly positive to see that Viking Supply Ships reduced its cash burn by 41% during the last year. And operating revenue was up by 18% too. It seems to be growing nicely. Of course, we've only taken a quick look at the stock's growth metrics, here. This graph of historic earnings and revenue shows how Viking Supply Ships is building its business over time.

How Hard Would It Be For Viking Supply Ships To Raise More Cash For Growth?

While Viking Supply Ships seems to be in a fairly good position, it's still worth considering how easily it could raise more cash, even just to fuel faster growth. 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. 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.

Viking Supply Ships' cash burn of kr63m is about 4.3% of its kr1.5b market capitalisation. That's a low proportion, so we figure the company would be able to raise more cash to fund growth, with a little dilution, or even to simply borrow some money.

So, Should We Worry About Viking Supply Ships' Cash Burn?

Viking Supply Ships appears to be in pretty good health when it comes to its cash burn situation. Not only was its cash burn reduction quite good, but its cash burn relative to its market cap was a real positive. Considering all the factors discussed in this article, we're not overly concerned about the company's cash burn, although we do think shareholders should keep an eye on how it develops. Taking a deeper dive, we've spotted 3 warning signs for Viking Supply Ships you should be aware of, and 1 of them doesn't sit too well with us.

Of course Viking Supply Ships 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.