We Think Oneview Healthcare (ASX:ONE) Can Afford To Drive Business Growth

Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. 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 while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

Given this risk, we thought we'd take a look at whether Oneview Healthcare (ASX:ONE) shareholders should 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.

Check out our latest analysis for Oneview Healthcare

How Long Is Oneview Healthcare's Cash Runway?

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. When Oneview Healthcare last reported its balance sheet in December 2021, it had zero debt and cash worth €15m. In the last year, its cash burn was €4.1m. Therefore, from December 2021 it had 3.7 years of cash runway. There's no doubt that this is a reassuringly long runway. You can see how its cash balance has changed over time in the image below.

How Well Is Oneview Healthcare Growing?

It was fairly positive to see that Oneview Healthcare reduced its cash burn by 49% during the last year. And considering that its operating revenue gained 37% during that period, that's great to see. It seems to be growing nicely. Of course, we've only taken a quick look at the stock's growth metrics, here. This graph of historic revenue growth shows how Oneview Healthcare is building its business over time.

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

We are certainly impressed with the progress Oneview Healthcare has made over the last year, but it is also worth considering how costly it would be if it wanted to raise more cash to fund faster growth. 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 €41m, Oneview Healthcare's €4.1m in cash burn equates to about 10.0% 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.

Is Oneview Healthcare's Cash Burn A Worry?

It may already be apparent to you that we're relatively comfortable with the way Oneview Healthcare is burning through its cash. For example, we think its cash runway suggests that the company is on a good path. But it's fair to say that its cash burn relative to its market cap was also very reassuring. Looking at all the measures in this article, together, we're not worried about its rate of cash burn; the company seems well on top of its medium-term spending needs. Taking an in-depth view of risks, we've identified 3 warning signs for Oneview Healthcare 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 companies insiders are buying, 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. 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.