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

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, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

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. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

See 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. When Intelligent Ultrasound Group last reported its balance sheet in June 2023, it had zero debt and cash worth UK£3.3m. In the last year, its cash burn was UK£4.7m. Therefore, from June 2023 it had roughly 8 months of cash runway. 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. Depicted below, you can see how its cash holdings have changed over time.

How Well Is Intelligent Ultrasound Group Growing?

Notably, Intelligent Ultrasound Group actually ramped up its cash burn very hard and fast in the last year, by 114%, signifying heavy investment in the business. While operating revenue was up over the same period, the 4.1% gain gives us scant comfort. Taken together, we think these growth metrics are a little worrying. In reality, this article only makes a short study of the company's growth data. This graph of historic earnings and revenue shows how Intelligent Ultrasound Group is building its business over time.

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

Since Intelligent Ultrasound Group has been boosting its cash burn, the market will likely be considering how it can raise more cash if need be. Companies can raise capital through either debt or equity. Many companies end up issuing new shares to fund future 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.

Intelligent Ultrasound Group has a market capitalisation of UK£41m and burnt through UK£4.7m last year, which is 12% of the company's market value. As a result, we'd venture that the company could raise more cash for growth without much trouble, albeit at the cost of some dilution.

So, Should We Worry About Intelligent Ultrasound Group's Cash Burn?

Even though its increasing cash burn makes us a little nervous, we are compelled to mention that we thought Intelligent Ultrasound Group's cash burn relative to its market cap was relatively promising. Looking at the factors mentioned in this short report, we do think that its cash burn is a bit risky, and it does make us slightly nervous about the stock. Taking a deeper dive, we've spotted 4 warning signs for Intelligent Ultrasound Group you should be aware of, and 1 of them is concerning.

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.