Companies Like Intelligent Ultrasound Group (LON:IUG) Are In A Position To Invest In Growth

We can readily understand why investors are attracted to unprofitable companies. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. 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 Intelligent Ultrasound Group (LON:IUG) 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'. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

View our latest analysis for Intelligent Ultrasound Group

When Might Intelligent Ultrasound Group Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In June 2020, Intelligent Ultrasound Group had UK£10m in cash, and was debt-free. In the last year, its cash burn was UK£3.9m. So it had a cash runway of about 2.6 years from June 2020. That's decent, giving the company a couple years to develop its business. The image below shows how its cash balance has been changing over the last few years.

How Well Is Intelligent Ultrasound Group Growing?

At first glance it's a bit worrying to see that Intelligent Ultrasound Group actually boosted its cash burn by 2.5%, year on year. Also concerning, operating revenue was actually down by 11% in that time. Considering both these factors, we're not particularly excited by its growth profile. Of course, we've only taken a quick look at the stock's growth metrics, here. You can take a look at how Intelligent Ultrasound Group has developed its business over time by checking this visualization of its revenue and earnings history.

How Hard Would It Be For Intelligent Ultrasound Group To Raise More Cash For Growth?

Intelligent Ultrasound Group seems to be in a fairly good position, in terms of cash burn, but we still think it's worthwhile considering how easily it could raise more money if it wanted to. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. Commonly, a business will sell new shares in itself to raise cash and drive 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 UK£39m, Intelligent Ultrasound Group's UK£3.9m in cash burn equates to about 10% of its market value. Given that situation, it's fair to say the company wouldn't have much trouble raising more cash for growth, but shareholders would be somewhat diluted.

Is Intelligent Ultrasound Group's Cash Burn A Worry?

On this analysis of Intelligent Ultrasound Group's cash burn, we think its cash runway was reassuring, while its falling revenue has us a bit worried. Considering all the factors discussed in this article, we're not overly concerned about the company's cash burn, although we do think shareholders should keep an eye on how it develops. Taking a deeper dive, we've spotted 4 warning signs for Intelligent Ultrasound Group you should be aware of, and 1 of them is a bit unpleasant.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies, 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. 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.
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