Here's Why We're Not At All Concerned With EMVision Medical Devices' (ASX:EMV) Cash Burn Situation

We can readily understand why investors are attracted to unprofitable companies. For example, although Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

Given this risk, we thought we'd take a look at whether EMVision Medical Devices (ASX:EMV) shareholders should be worried about its cash burn. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

View our latest analysis for EMVision Medical Devices

SWOT Analysis for EMVision Medical Devices

When Might EMVision Medical Devices Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. When EMVision Medical Devices last reported its balance sheet in December 2022, it had zero debt and cash worth AU$9.6m. Importantly, its cash burn was AU$900k over the trailing twelve months. So it had a very long cash runway of many years from December 2022. While this is only one measure of its cash burn situation, it certainly gives us the impression that holders have nothing to worry about. The image below shows how its cash balance has been changing over the last few years.

How Well Is EMVision Medical Devices Growing?

Happily, EMVision Medical Devices is travelling in the right direction when it comes to its cash burn, which is down 76% over the last year. This reduction was no doubt supported by its strong revenue growth of 72% in the same period. Overall, we'd say its growth is rather impressive. While the past is always worth studying, it is the future that matters most of all. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

How Hard Would It Be For EMVision Medical Devices To Raise More Cash For Growth?

While EMVision Medical Devices seems to be in a decent position, we reckon it is still worth thinking about how easily it could raise more cash, if that proved desirable. Companies can raise capital through either debt or equity. 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 looking at a company's cash burn relative to its market capitalisation, we gain insight on how much shareholders would be diluted if the company needed to raise enough cash to cover another year's cash burn.

EMVision Medical Devices has a market capitalisation of AU$117m and burnt through AU$900k last year, which is 0.8% of the company's market value. That means it could easily issue a few shares to fund more growth, and might well be in a position to borrow cheaply.

So, Should We Worry About EMVision Medical Devices' Cash Burn?

As you can probably tell by now, we're not too worried about EMVision Medical Devices' cash burn. For example, we think its revenue growth suggests that the company is on a good path. But it's fair to say that its cash burn reduction was also very reassuring. Taking all the factors in this report into account, we're not at all worried about its cash burn, as the business appears well capitalized to spend as needs be. On another note, we conducted an in-depth investigation of the company, and identified 3 warning signs for EMVision Medical Devices (1 is a bit concerning!) that you should be aware of before investing here.

Of course EMVision Medical Devices 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.