Companies Like Bradaverse Education (Int'l) Investments Group (HKG:1082) 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. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

So should Bradaverse Education (Int'l) Investments Group (HKG:1082) 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. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

See our latest analysis for Bradaverse Education (Int'l) Investments Group

When Might Bradaverse Education (Int'l) Investments Group Run Out Of Money?

A company's cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. In June 2022, Bradaverse Education (Int'l) Investments Group had HK$74m in cash, and was debt-free. In the last year, its cash burn was HK$18m. Therefore, from June 2022 it had 4.2 years of cash runway. There's no doubt that this is a reassuringly long runway. The image below shows how its cash balance has been changing over the last few years.

How Well Is Bradaverse Education (Int'l) Investments Group Growing?

One thing for shareholders to keep front in mind is that Bradaverse Education (Int'l) Investments Group increased its cash burn by 1,465% in the last twelve months. Of course, the truly verdant revenue growth of 126% in that time may well justify the growth spend. In light of the data above, we're fairly sanguine about the business growth trajectory. Of course, we've only taken a quick look at the stock's growth metrics, here. This graph of historic revenue growth shows how Bradaverse Education (Int'l) Investments Group is building its business over time.

How Hard Would It Be For Bradaverse Education (Int'l) Investments Group To Raise More Cash For Growth?

While Bradaverse Education (Int'l) Investments 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. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. 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).

Bradaverse Education (Int'l) Investments Group has a market capitalisation of HK$1.1b and burnt through HK$18m last year, which is 1.6% of the company's market value. That means it could easily issue a few shares to fund more growth, and might well be in a position to borrow cheaply.

How Risky Is Bradaverse Education (Int'l) Investments Group's Cash Burn Situation?

As you can probably tell by now, we're not too worried about Bradaverse Education (Int'l) Investments Group's cash burn. In particular, we think its revenue growth stands out as evidence that the company is well on top of its spending. Although we do find its increasing cash burn to be a bit of a negative, once we consider the other metrics mentioned in this article together, the overall picture is one we are comfortable with. 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. For us, it's always important to consider risks around cash burn rates. But investors should look at a whole range of factors when researching a new stock. For example, it could be interesting to see how much the Bradaverse Education (Int'l) Investments Group CEO receives in total remuneration.

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.

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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.