We're Not Very Worried About G-Vision International (Holdings)'s (HKG:657) Cash Burn Rate

Just because a business does not make any money, does not mean that the stock will go down. Indeed, G-Vision International (Holdings) (HKG:657) stock is up 279% in the last year, providing strong gains for shareholders. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

Given its strong share price performance, we think it's worthwhile for G-Vision International (Holdings) shareholders to consider whether its cash burn is concerning. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

View our latest analysis for G-Vision International (Holdings)

Does G-Vision International (Holdings) Have A Long Cash Runway?

A cash runway is defined as the length of time it would take a company to run out of money if it kept spending at its current rate of cash burn. As at September 2020, G-Vision International (Holdings) had cash of HK$45m and no debt. Looking at the last year, the company burnt through HK$11m. Therefore, from September 2020 it had 4.0 years of cash runway. There's no doubt that this is a reassuringly long runway. You can see how its cash balance has changed over time in the image below.

How Well Is G-Vision International (Holdings) Growing?

We reckon the fact that G-Vision International (Holdings) managed to shrink its cash burn by 31% over the last year is rather encouraging. But the revenue dip of 38% in the same period was a bit concerning. Considering both these factors, we're not particularly excited by its growth profile. In reality, this article only makes a short study of the company's growth data. You can take a look at how G-Vision International (Holdings) has developed its business over time by checking this visualization of its revenue and earnings history.

Can G-Vision International (Holdings) Raise More Cash Easily?

While G-Vision International (Holdings) seems to be in a fairly good position, it's still worth considering how easily it could raise more cash, even just to fuel faster growth. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. 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.

Since it has a market capitalisation of HK$206m, G-Vision International (Holdings)'s HK$11m in cash burn equates to about 5.4% of its market value. 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.

So, Should We Worry About G-Vision International (Holdings)'s Cash Burn?

As you can probably tell by now, we're not too worried about G-Vision International (Holdings)'s cash burn. For example, we think its cash runway suggests that the company is on a good path. While we must concede that its falling revenue is a bit worrying, the other factors mentioned in this article provide great comfort when it comes to the cash burn. 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. Separately, we looked at different risks affecting the company and spotted 3 warning signs for G-Vision International (Holdings) (of which 1 can't be ignored!) you should know about.

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. 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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