Here's Why We're Not Too Worried About Integrated Waste Solutions Group Holdings' (HKG:923) Cash Burn Situation

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. But while the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.

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.

Check out 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. Integrated Waste Solutions Group Holdings has such a small amount of debt that we'll set it aside, and focus on the HK$85m in cash it held at September 2020. Importantly, its cash burn was HK$10m over the trailing twelve months. That means it had a cash runway of about 8.3 years as of September 2020. 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. It's even more troubling to see that operating revenue fell 58% during the period. 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 Easily Can Integrated Waste Solutions Group Holdings Raise Cash?

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).

Since it has a market capitalisation of HK$212m, Integrated Waste Solutions Group Holdings' HK$10m in cash burn equates to about 4.8% of its 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.

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

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. Its important for readers to be cognizant of the risks that can affect the company's operations, and we've picked out 1 warning sign for Integrated Waste Solutions Group Holdings that investors should know when investing in the stock.

Of course Integrated Waste Solutions Group Holdings 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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