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

Just because a business does not make any money, does not mean that the stock will go down. 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. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

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. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

View our latest analysis for Integrated Waste Solutions Group Holdings

Does Integrated Waste Solutions Group Holdings Have A Long Cash Runway?

A cash runway is defined as the length of time it would take a company to run out of money if it kept spending at its current rate of cash burn. As at March 2021, Integrated Waste Solutions Group Holdings had cash of HK$78m and such minimal debt that we can ignore it for the purposes of this analysis. Looking at the last year, the company burnt through HK$7.6m. That means it had a cash runway of very many years as of March 2021. While this is only one measure of its cash burn situation, it certainly gives us the impression that holders have nothing to worry about. 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?

We reckon the fact that Integrated Waste Solutions Group Holdings managed to shrink its cash burn by 49% over the last year is rather encouraging. But it makes us pessimistic to see that operating revenue slid 51% in that time. In light of the data above, we're fairly sanguine about the business growth trajectory. In reality, this article only makes a short study of the company's growth data. This graph of historic earnings and revenue shows how Integrated Waste Solutions Group Holdings is building its business over time.

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

We are certainly impressed with the progress Integrated Waste Solutions Group Holdings 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. 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.

Integrated Waste Solutions Group Holdings has a market capitalisation of HK$260m and burnt through HK$7.6m last year, which is 2.9% of the company's market value. That means it could easily issue a few shares to fund more growth, and might well be in a position to borrow cheaply.

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

As you can probably tell by now, we're not too worried about Integrated Waste Solutions Group Holdings' cash burn. In particular, we think its cash runway stands out as evidence that the company is well on top of its spending. Although we do find its falling revenue to be a bit of a negative, once we consider the other metrics mentioned in this article together, the overall picture is one we are comfortable with. Looking at all the measures in this article, together, we're not worried about its rate of cash burn; the company seems well on top of its medium-term spending needs. An in-depth examination of risks revealed 1 warning sign for Integrated Waste Solutions Group Holdings that readers should think about before committing capital to this 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. 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.
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