We're Not Very Worried About MicroPort CardioFlow Medtech's (HKG:2160) Cash Burn Rate

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, although Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

So should MicroPort CardioFlow Medtech (HKG:2160) shareholders be worried about its cash burn? For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

View our latest analysis for MicroPort CardioFlow Medtech

When Might MicroPort CardioFlow Medtech 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 December 2021, MicroPort CardioFlow Medtech had CN¥2.2b in cash, and was debt-free. Importantly, its cash burn was CN¥270m over the trailing twelve months. Therefore, from December 2021 it had 8.2 years of cash runway. Notably, however, analysts think that MicroPort CardioFlow Medtech will break even (at a free cash flow level) before then. If that happens, then the length of its cash runway, today, would become a moot point. Depicted below, you can see how its cash holdings have changed over time.

How Well Is MicroPort CardioFlow Medtech Growing?

MicroPort CardioFlow Medtech boosted investment sharply in the last year, with cash burn ramping by 61%. While that isa little concerning at a glance, the company has a track record of recent growth, evidenced by the impressive 93% growth in revenue, over the very same year. Considering the factors above, the company doesn’t fare badly when it comes to assessing how it is changing over time. Clearly, however, the crucial factor is whether the company will grow its business going forward. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

How Easily Can MicroPort CardioFlow Medtech Raise Cash?

We are certainly impressed with the progress MicroPort CardioFlow Medtech 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. 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 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.

MicroPort CardioFlow Medtech has a market capitalisation of CN¥6.4b and burnt through CN¥270m last year, which is 4.2% of the company's 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.

How Risky Is MicroPort CardioFlow Medtech's Cash Burn Situation?

It may already be apparent to you that we're relatively comfortable with the way MicroPort CardioFlow Medtech is burning through its cash. In particular, we think its revenue growth stands out as evidence that the company is well on top of its spending. While its increasing cash burn wasn't great, the other factors mentioned in this article more than make up for weakness on that measure. Shareholders can take heart from the fact that analysts are forecasting it 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. An in-depth examination of risks revealed 2 warning signs for MicroPort CardioFlow Medtech that readers should think about before committing capital to this stock.

Of course MicroPort CardioFlow Medtech 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.