We're Not Worried About Hang Pin Living Technology's (HKG:1682) Cash Burn

Just because a business does not make any money, does not mean that the stock will go down. 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?

So, the natural question for Hang Pin Living Technology (HKG:1682) shareholders is whether they should be concerned by its rate of 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.

Check out our latest analysis for Hang Pin Living Technology

When Might Hang Pin Living Technology 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. As at March 2021, Hang Pin Living Technology had cash of HK$39m and no debt. Looking at the last year, the company burnt through HK$7.2m. So it had a cash runway of about 5.4 years from March 2021. While this is only one measure of its cash burn situation, it certainly gives us the impression that holders have nothing to worry about. Depicted below, you can see how its cash holdings have changed over time.

Is Hang Pin Living Technology's Revenue Growing?

We're hesitant to extrapolate on the recent trend to assess its cash burn, because Hang Pin Living Technology actually had positive free cash flow last year, so operating revenue growth is probably our best bet to measure, right now. As it happens, operating revenue has been pretty flat over the last year. In reality, this article only makes a short study of the company's growth data. You can take a look at how Hang Pin Living Technology has developed its business over time by checking this visualization of its revenue and earnings history.

Can Hang Pin Living Technology Raise More Cash Easily?

Since its revenue growth is moving in the wrong direction, Hang Pin Living Technology shareholders may wish to think ahead to when the company may need to raise more cash. Companies can raise capital through either debt or equity. 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).

Hang Pin Living Technology's cash burn of HK$7.2m is about 3.6% of its HK$200m market capitalisation. 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.

How Risky Is Hang Pin Living Technology's Cash Burn Situation?

It may already be apparent to you that we're relatively comfortable with the way Hang Pin Living Technology is burning through its cash. For example, we think its cash runway suggests that the company is on a good path. Although its falling revenue does give us reason for pause, the other metrics we discussed in this article form a positive picture overall. 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. Readers need to have a sound understanding of business risks before investing in a stock, and we've spotted 3 warning signs for Hang Pin Living Technology that potential shareholders should take into account before putting money into a stock.

If you would prefer to check out another company with better fundamentals, then do not miss this free list of interesting companies, that have HIGH return on equity and low debt or this list of stocks which are all forecast to grow.

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.

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