Companies Like Integrated Waste Solutions Group Holdings (HKG:923) Are In A Position To Invest In Growth

Just because a business does not make any money, does not mean that the stock will go down. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

So should Integrated Waste Solutions Group Holdings (HKG:923) 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. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

See our latest analysis for Integrated Waste Solutions Group Holdings

When Might Integrated Waste Solutions Group Holdings 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. As at September 2020, Integrated Waste Solutions Group Holdings had cash of HK$85m and such minimal debt that we can ignore it for the purposes of this analysis. Importantly, its cash burn was HK$10m over the trailing twelve months. Therefore, from September 2020 it had 8.3 years of cash runway. While this is only one measure of its cash burn situation, it certainly gives us the impression that holders have nothing to worry about. You can see how its cash balance has changed over time in the image below.

How Well Is Integrated Waste Solutions Group Holdings Growing?

Some investors might find it troubling that Integrated Waste Solutions Group Holdings is actually increasing its cash burn, which is up 23% in the last year. The fact that operating revenue was down 58% only gives us further disquiet. Considering both these metrics, we're a little concerned about how the company is developing. In reality, this article only makes a short study of the company's growth data. You can take a look at how Integrated Waste Solutions Group Holdings has developed its business over time by checking this visualization of its revenue and earnings history.

How Hard Would It Be For Integrated Waste Solutions Group Holdings To Raise More Cash For Growth?

Integrated Waste Solutions Group Holdings seems to be in a fairly good position, in terms of cash burn, but we still think it's worthwhile considering how easily it could raise more money if it wanted to. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. Many companies end up issuing new shares to fund future 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).

Integrated Waste Solutions Group Holdings has a market capitalisation of HK$299m and burnt through HK$10m last year, which is 3.4% 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.

So, Should We Worry About Integrated Waste Solutions Group Holdings' Cash Burn?

On this analysis of Integrated Waste Solutions Group Holdings' cash burn, we think its cash runway was reassuring, while its falling revenue has us a bit worried. 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. Taking an in-depth view of risks, we've identified 2 warning signs for Integrated Waste Solutions Group Holdings that you should be aware of before investing.

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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