Just because a business does not make any money, does not mean that the stock will go down. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

So, the natural question for Tracker Ventures (CSE:TKR) 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). The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

See our latest analysis for Tracker Ventures

How Long Is Tracker Ventures'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 February 2020, Tracker Ventures had CA$474 in cash, and was debt-free. Importantly, its cash burn was CA$142k over the trailing twelve months. Therefore, from February 2020 it seems to us it had less than two 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 Tracker Ventures's Cash Burn Changing Over Time?

Whilst it's great to see that Tracker Ventures has already begun generating revenue from operations, last year it only produced CA$38k, so we don't think it is generating significant revenue, at this point. As a result, we think it's a bit early to focus on the revenue growth, so we'll limit ourselves to looking at how the cash burn is changing over time. The good news, from a balance sheet perspective, is that it actually reduced its cash burn by 91% in the last twelve months. That might not be promising when it comes to business development, but it's good for the companies cash preservation. Tracker Ventures 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 Tracker Ventures Raise Cash?

There's no doubt Tracker Ventures'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. Commonly, a business will sell new shares in itself to raise cash to 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.

Tracker Ventures has a market capitalisation of CA$321k and burnt through CA$142k last year, which is 44% of the company's market value. That's high expenditure relative to the value of the entire company, so if it does have to issue shares to fund more growth, that could end up really hurting shareholders returns (through significant dilution).

Is Tracker Ventures's Cash Burn A Worry?

Even though its cash runway makes us a little nervous, we are compelled to mention that we thought Tracker Ventures's cash burn reduction was relatively promising. After considering the data discussed in this article, we don't have a lot of confidence that its cash burn rate is prudent, as it seems like it might need more cash soon. Taking an in-depth view of risks, we've identified 4 warning signs for Tracker Ventures that you should be aware of before investing.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies, and this list of stocks growth stocks (according to analyst forecasts)

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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. 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. Thank you for reading.