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

There's no doubt that money can be made by owning shares of unprofitable businesses. For example, although software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you'd have done very well indeed. 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 MicroPort CardioFlow Medtech (HKG:2160) 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'. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

Check out 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 2020, MicroPort CardioFlow Medtech had CN¥622m in cash, and was debt-free. Importantly, its cash burn was CN¥168m over the trailing twelve months. That means it had a cash runway of about 3.7 years as of December 2020. Importantly, though, analysts think that MicroPort CardioFlow Medtech will reach cashflow breakeven before then. If that happens, then the length of its cash runway, today, would become a moot point. The image below shows how its cash balance has been changing over the last few years.

How Well Is MicroPort CardioFlow Medtech Growing?

MicroPort CardioFlow Medtech reduced its cash burn by 12% during the last year, which points to some degree of discipline. But this achievement is overshadowed by the brilliant operating revenue growth of 383%. We think it is growing rather well, upon reflection. 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 Hard Would It Be For MicroPort CardioFlow Medtech To Raise More Cash For Growth?

While MicroPort CardioFlow Medtech 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. Companies can raise capital through either debt or equity. 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.

MicroPort CardioFlow Medtech's cash burn of CN¥168m is about 0.5% of its CN¥33b market capitalisation. 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 MicroPort CardioFlow Medtech's Cash Burn A Worry?

As you can probably tell by now, we're not too worried about MicroPort CardioFlow Medtech's cash burn. For example, we think its revenue growth suggests that the company is on a good path. On this analysis its cash burn reduction was its weakest feature, but we are not concerned about it. Shareholders can take heart from the fact that analysts are forecasting it will reach breakeven. After considering a range of factors in this article, we're pretty relaxed about its cash burn, since the company seems to be in a good position to continue to fund its growth. Readers need to have a sound understanding of business risks before investing in a stock, and we've spotted 1 warning sign for MicroPort CardioFlow Medtech that potential shareholders should take into account before putting money into a stock.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies, 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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