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. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

So should Victory Metals (ASX:VTM) shareholders 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.

See our latest analysis for Victory Metals

When Might Victory Metals Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Victory Metals last reported its December 2024 balance sheet in March 2025, it had zero debt and cash worth AU$4.9m. Importantly, its cash burn was AU$3.3m over the trailing twelve months. So it had a cash runway of approximately 18 months from December 2024. 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. Depicted below, you can see how its cash holdings have changed over time.

How Is Victory Metals' Cash Burn Changing Over Time?

In our view, Victory Metals doesn't yet produce significant amounts of operating revenue, since it reported just AU$752k in the last twelve months. Therefore, for the purposes of this analysis we'll focus on how the cash burn is tracking. Even though it doesn't get us excited, the 24% reduction in cash burn year on year does suggest the company can continue operating for quite some time. Victory Metals makes us a little nervous due to its lack of substantial operating revenue. So we'd generally prefer stocks from this list of stocks that have analysts forecasting growth.

How Hard Would It Be For Victory Metals To Raise More Cash For Growth?

While Victory Metals is showing a solid reduction in its cash burn, it's still worth considering how easily it could raise more cash, even just to fuel faster growth. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund 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).

Since it has a market capitalisation of AU$47m, Victory Metals' AU$3.3m in cash burn equates to about 6.9% of its market value. 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.

How Risky Is Victory Metals' Cash Burn Situation?

The good news is that in our view Victory Metals' cash burn situation gives shareholders real reason for optimism. One the one hand we have its solid cash burn reduction, while on the other it can also boast very strong cash burn relative to its market cap. Cash burning companies are always on the riskier side of things, but after considering all of the factors discussed in this short piece, we're not too worried about its rate of cash burn. On another note, Victory Metals has 4 warning signs (and 3 which make us uncomfortable) we think you should know about.

If you would prefer to check out another company with better fundamentals, then do not miss this free list of interesting companies, that have HIGH return on equity and low debt or this list of stocks which are all forecast to grow.

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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.