Intelligent Ultrasound Group (LON:IUG) Is In A Good Position To Deliver On Growth Plans

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 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 should Intelligent Ultrasound Group (LON:IUG) shareholders be worried about its cash burn? In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. 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 Intelligent Ultrasound Group

When Might Intelligent Ultrasound Group 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. In June 2022, Intelligent Ultrasound Group had UK£3.5m in cash, and was debt-free. Importantly, its cash burn was UK£2.2m over the trailing twelve months. Therefore, from June 2022 it had roughly 19 months of cash runway. That's not too bad, but it's fair to say the end of the cash runway is in sight, unless cash burn reduces drastically. Depicted below, you can see how its cash holdings have changed over time.

How Well Is Intelligent Ultrasound Group Growing?

It was fairly positive to see that Intelligent Ultrasound Group reduced its cash burn by 45% during the last year. Having said that, the revenue growth of 56% was considerably more inspiring. We think it is growing rather well, upon reflection. 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 Intelligent Ultrasound Group To Raise More Cash For Growth?

While Intelligent Ultrasound Group 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. Many companies end up issuing new shares to fund future growth. We can compare a company's cash burn to its market capitalisation to get a sense for how many new shares a company would have to issue to fund one year's operations.

Intelligent Ultrasound Group has a market capitalisation of UK£29m and burnt through UK£2.2m last year, which is 7.6% of the company's 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.

Is Intelligent Ultrasound Group's Cash Burn A Worry?

It may already be apparent to you that we're relatively comfortable with the way Intelligent Ultrasound Group is burning through its cash. In particular, we think its revenue growth stands out as evidence that the company is well on top of its spending. Its cash runway wasn't quite as good, but was still rather encouraging! Based on the factors mentioned in this article, we think its cash burn situation warrants some attention from shareholders, but we don't think they should be worried. An in-depth examination of risks revealed 1 warning sign for Intelligent Ultrasound Group that readers should think about before committing capital to this stock.

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.