We're Hopeful That Ping An Healthcare and Technology (HKG:1833) Will Use Its Cash Wisely

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 while the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.

Given this risk, we thought we'd take a look at whether Ping An Healthcare and Technology (HKG:1833) shareholders should 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. Let's start with an examination of the business' cash, relative to its cash burn.

View our latest analysis for Ping An Healthcare and Technology

How Long Is Ping An Healthcare and Technology's Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In June 2023, Ping An Healthcare and Technology had CN¥12b in cash, and was debt-free. Looking at the last year, the company burnt through CN¥829m. So it had a very long cash runway of many years from June 2023. Importantly, though, analysts think that Ping An Healthcare and Technology will reach cashflow breakeven before then. In that case, it may never reach the end of its cash runway. Depicted below, you can see how its cash holdings have changed over time.

How Well Is Ping An Healthcare and Technology Growing?

We reckon the fact that Ping An Healthcare and Technology managed to shrink its cash burn by 33% over the last year is rather encouraging. Unfortunately, however, operating revenue declined by 13% during the period. Considering the factors above, the company doesn’t fare badly when it comes to assessing how it is changing over time. 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 Easily Can Ping An Healthcare and Technology Raise Cash?

We are certainly impressed with the progress Ping An Healthcare and Technology 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. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund 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).

Ping An Healthcare and Technology's cash burn of CN¥829m is about 4.4% of its CN¥19b market capitalisation. 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 Ping An Healthcare and Technology's Cash Burn?

It may already be apparent to you that we're relatively comfortable with the way Ping An Healthcare and 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. One real positive is that analysts are forecasting that the company will reach breakeven. After taking into account the various metrics mentioned in this report, we're pretty comfortable with how the company is spending its cash, as it seems on track to meet its needs over the medium term. We think it's very important to consider the cash burn for loss making companies, but other considerations such as the amount the CEO is paid can also enhance your understanding of the business. You can click here to see what Ping An Healthcare and Technology's CEO gets paid each year.

Of course Ping An Healthcare and Technology 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 that insiders are buying.

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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.