Medical Developments International (ASX:MVP) Is In A Strong Position To Grow Its Business

We can readily understand why investors are attracted to unprofitable companies. For example, although software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you'd have done very well indeed. But while the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.

So, the natural question for Medical Developments International (ASX:MVP) 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). First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

When Might Medical Developments International Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Medical Developments International last reported its December 2024 balance sheet in February 2025, it had zero debt and cash worth AU$18m. Looking at the last year, the company burnt through AU$7.1m. That means it had a cash runway of about 2.5 years as of December 2024. Notably, however, analysts think that Medical Developments International will break even (at a free cash flow level) before then. If that happens, then the length of its cash runway, today, would become a moot point. Depicted below, you can see how its cash holdings have changed over time.

Check out our latest analysis for Medical Developments International

How Well Is Medical Developments International Growing?

Medical Developments International managed to reduce its cash burn by 65% over the last twelve months, which suggests it's on the right flight path. And it could also show revenue growth of 13% in the same period. We think it is growing rather well, upon reflection. Clearly, however, the crucial factor is whether the company will grow its business going forward. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

Can Medical Developments International Raise More Cash Easily?

We are certainly impressed with the progress Medical Developments International 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. 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 and drive 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 AU$74m, Medical Developments International's AU$7.1m in cash burn equates to about 9.7% of its market value. Given that is a rather small percentage, it would probably be really easy for the company to fund another year's growth by issuing some new shares to investors, or even by taking out a loan.

So, Should We Worry About Medical Developments International's Cash Burn?

It may already be apparent to you that we're relatively comfortable with the way Medical Developments International is burning through its cash. In particular, we think its cash burn reduction stands out as evidence that the company is well on top of its spending. Its revenue growth wasn't quite as good, but was still rather encouraging! It's clearly very positive to see that analysts are forecasting the company will break even fairly soon. 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, Medical Developments International has 2 warning signs (and 1 which shouldn't be ignored) we think you should know about.

Of course Medical Developments International 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 with high insider ownership.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.