We Think Ping An Healthcare and Technology (HKG:1833) Can Easily Afford To Drive Business Growth

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. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

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 report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. Let's start with an examination of the business' cash, relative to its cash burn.

Check out 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 2020, Ping An Healthcare and Technology had CN¥6.4b in cash, and was debt-free. Looking at the last year, the company burnt through CN¥469m. That means it had a cash runway of very many years as of June 2020. Notably, however, analysts think that Ping An Healthcare and Technology will break even (at a free cash flow level) before then. In that case, it may never reach the end of its cash runway. The image below shows how its cash balance has been changing over the last few years.

How Well Is Ping An Healthcare and Technology Growing?

Happily, Ping An Healthcare and Technology is travelling in the right direction when it comes to its cash burn, which is down 56% over the last year. Pleasingly, this was achieved with the help of a 23% boost to revenue. We think it is growing rather well, upon reflection. Clearly, however, the crucial factor is whether the company will grow its business going forward. So you might want to take a peek at how much the company is expected to grow in the next few years.

Can Ping An Healthcare and Technology Raise More Cash Easily?

There's no doubt Ping An Healthcare and Technology seems to be in a fairly good position, when it comes to managing its cash burn, but even if it's only hypothetical, it's always worth asking how easily it could raise more money to fund growth. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund growth. We can compare a company's cash burn to its market capitalisation to get a sense for how many new shares a company would have to issue to fund one year's operations.

Since it has a market capitalisation of CN¥84b, Ping An Healthcare and Technology's CN¥469m in cash burn equates to about 0.6% of its market value. So it could almost certainly just borrow a little to fund another year's growth, or else easily raise the cash by issuing a few shares.

Is Ping An Healthcare and Technology's Cash Burn A Worry?

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. In particular, we think its cash runway stands out as evidence that the company is well on top of its spending. Its revenue growth wasn't quite as good, but was still rather encouraging! It's clearly very positive to see that analysts are forecasting the company will break even fairly soon. Taking all the factors in this report into account, we're not at all worried about its cash burn, as the business appears well capitalized to spend as needs be. Readers need to have a sound understanding of business risks before investing in a stock, and we've spotted 1 warning sign for Ping An Healthcare and Technology that potential shareholders should take into account before putting money into a stock.

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. 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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