Here’s why we’re not too worried about CanAlaska Uranium’s silver consumption situation (CVE: CVV)

There is no doubt that money can be made by owning shares of unprofitable companies. For exemple, CanAlaska Uranium (CVE: CVV) has seen its share price rise 413% over the past year, delighting many shareholders. But while the successes are well known, investors shouldn’t ignore the myriad of unprofitable companies that simply burn all their money and collapse.

In light of the sharp rise in its stock price, we believe the time has come to consider how risky CanAlaska Uranium’s cash consumption is. In this article, we define cash consumption as its annual (negative) free cash flow, that is, the amount that a company spends each year to finance its growth. Let’s start with a review of the company’s cash flow, relative to its cash consumption.

See our latest analysis for CanAlaska Uranium

How long is the CanAlaska Uranium treasury track?

A cash flow trail is defined as the time it would take a business to run out of cash if it continued to spend at its current rate of cash consumption. As of January 2021, CanAlaska Uranium had C $ 5.1 million in cash and no debt. Looking at last year, the company burned C $ 2.3 million. So he had a cash flow trail of around 2.2 years from January 2021. It’s decent, giving the company a few years to grow its business. You can see how her cash balance has changed over time in the image below.

TSXV: CVV Debt to equity Historical March 16, 2021

How does CanAlaska Uranium silver consumption change over time?

CanAlaska Uranium has not recorded any sales over the past year, indicating that it is a start-up company that continues to expand its business. Nonetheless, we can still examine its cash consumption trajectory as part of our assessment of its cash consumption situation. While it hardly gives a picture of imminent growth, the fact that it has reduced its cash consumption by 36% in the last year suggests a certain caution. Certainly, we are a little cautious about CanAlaska Uranium because of its lack of significant operating revenues. We therefore generally prefer the actions of this list of stocks that analysts predict will grow.

How easily can uranium from Alaska raise funds?

Even though it recently reduced its cash consumption, shareholders should still consider how easy it would be for CanAlaska Uranium to raise more cash in the future. The issuance of new shares or indebtedness are the most common ways for a listed company to raise more money for its activity. Many companies end up issuing new shares to fund their future growth. By comparing a company’s annual cash consumption to its total market capitalization, we can roughly estimate how many shares it would need to issue to keep the business running for another year (at the same burn rate).

CanAlaska Uranium’s cash consumption of C $ 2.3 million represents approximately 6.9% of its market capitalization of C $ 34 million. Given that this is a rather small percentage, it would probably be very easy for the company to finance the growth of another year by issuing new shares to investors, or even taking out a loan.

How risky is CanAlaska Uranium’s silver consumption situation?

As you can probably see by now, we’re not too concerned about CanAlaska Uranium’s cash consumption. For example, we think its consumption of cash relative to its market capitalization suggests that the company is on the right track. His reduction in money consumption was not as good, but was still quite encouraging! Considering all the factors covered in this article, we are not too concerned about the company’s cash consumption, although we believe shareholders should keep an eye on its development. Diving deeper, we spotted 5 warning signs for CanAlaska Uranium you should be aware of it, and one of them doesn’t suit us very well.

Sure, you might find a fantastic investment looking elsewhere. So take a look at this free list of interesting companies, and this list of growth stocks (according to analysts’ forecasts)

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This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.
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