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

We can readily understand why investors are attracted to unprofitable companies. 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. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

Given this risk, we thought we'd take a look at whether Integrated Waste Solutions Group Holdings (HKG:923) shareholders should 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. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

View our latest analysis for Integrated Waste Solutions Group Holdings

How Long Is Integrated Waste Solutions Group Holdings' Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Integrated Waste Solutions Group Holdings last reported its balance sheet in September 2021, it had zero debt and cash worth HK$87m. Importantly, its cash burn was HK$18m over the trailing twelve months. That means it had a cash runway of about 4.8 years as of September 2021. There's no doubt that this is a reassuringly long runway. The image below shows how its cash balance has been changing over the last few years.

How Well Is Integrated Waste Solutions Group Holdings Growing?

Integrated Waste Solutions Group Holdings boosted investment sharply in the last year, with cash burn ramping by 79%. As if that's not bad enough, the operating revenue also dropped by 36%, making us very wary indeed. Considering both these metrics, we're a little concerned about how the company is developing. Of course, we've only taken a quick look at the stock's growth metrics, here. 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. 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. 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' cash burn of HK$18m is about 11% of its HK$159m market capitalisation. As a result, we'd venture that the company could raise more cash for growth without much trouble, albeit at the cost of some dilution.

Is Integrated Waste Solutions Group Holdings' Cash Burn A Worry?

Even though its falling revenue makes us a little nervous, we are compelled to mention that we thought Integrated Waste Solutions Group Holdings' cash runway was relatively promising. While we're the kind of investors who are always a bit concerned about the risks involved with cash burning companies, the metrics we have discussed in this article leave us relatively comfortable about Integrated Waste Solutions Group Holdings' situation. Readers need to have a sound understanding of business risks before investing in a stock, and we've spotted 2 warning signs for Integrated Waste Solutions Group Holdings that potential shareholders should take into account before putting money into a stock.

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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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.