Here's Why We're A Bit Worried About Oneview Healthcare's (ASX:ONE) 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. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

So, the natural question for Oneview Healthcare (ASX:ONE) shareholders is whether they should be concerned by its rate of cash burn. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

See our latest analysis for Oneview Healthcare

When Might Oneview Healthcare Run Out Of Money?

You can calculate a company's cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. As at December 2022, Oneview Healthcare had cash of €6.4m and no debt. In the last year, its cash burn was €9.0m. So it had a cash runway of approximately 9 months from December 2022. To be frank, this kind of short runway puts us on edge, as it indicates the company must reduce its cash burn significantly, or else raise cash imminently. The image below shows how its cash balance has been changing over the last few years.

How Well Is Oneview Healthcare Growing?

Notably, Oneview Healthcare actually ramped up its cash burn very hard and fast in the last year, by 119%, signifying heavy investment in the business. As if that's not bad enough, the operating revenue also dropped by 8.3%, making us very wary indeed. Considering both these metrics, we're a little concerned about how the company is developing. 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 Oneview Healthcare is building its business over time.

How Hard Would It Be For Oneview Healthcare To Raise More Cash For Growth?

Since Oneview Healthcare can't yet boast improving growth metrics, the market will likely be considering how it can raise more cash if need be. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. 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.

Since it has a market capitalisation of €24m, Oneview Healthcare's €9.0m in cash burn equates to about 37% of its market value. That's fairly notable cash burn, so if the company had to sell shares to cover the cost of another year's operations, shareholders would suffer some costly dilution.

How Risky Is Oneview Healthcare's Cash Burn Situation?

Oneview Healthcare is not in a great position when it comes to its cash burn situation. Although we can understand if some shareholders find its falling revenue acceptable, we can't ignore the fact that we consider its increasing cash burn to be downright troublesome. Considering all the measures mentioned in this report, we reckon that its cash burn is fairly risky, and if we held shares we'd be watching like a hawk for any deterioration. Separately, we looked at different risks affecting the company and spotted 4 warning signs for Oneview Healthcare (of which 1 shouldn't be ignored!) you should know about.

Of course Oneview Healthcare 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.