We're Not Very Worried About Integrated Waste Solutions Group Holdings' (HKG:923) Cash Burn Rate

There's no doubt that money can be made by owning shares of unprofitable businesses. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

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. In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. 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

How Long Is Integrated Waste Solutions Group Holdings' 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 2022, Integrated Waste Solutions Group Holdings had cash of HK$76m and no debt. In the last year, its cash burn was HK$19m. Therefore, from March 2022 it had 4.1 years of cash runway. 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?

Notably, Integrated Waste Solutions Group Holdings actually ramped up its cash burn very hard and fast in the last year, by 145%, signifying heavy investment in the business. As if that's not bad enough, the operating revenue also dropped by 18%, making us very wary indeed. In light of the above-mentioned, we're pretty wary of the trajectory the company seems to be on. Of course, we've only taken a quick look at the stock's growth metrics, here. This graph of historic earnings and revenue shows how Integrated Waste Solutions Group Holdings is building its business over time.

How Easily Can Integrated Waste Solutions Group Holdings Raise Cash?

Even though it seems like Integrated Waste Solutions Group Holdings is developing its business nicely, we still like to consider how easily it could raise more money to accelerate growth. 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. By looking at a company's cash burn relative to its market capitalisation, we gain insight on how much shareholders would be diluted if the company needed to raise enough cash to cover another year's cash burn.

Integrated Waste Solutions Group Holdings has a market capitalisation of HK$193m and burnt through HK$19m last year, which is 9.7% 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.

How Risky Is Integrated Waste Solutions Group Holdings' Cash Burn Situation?

On this analysis of Integrated Waste Solutions Group Holdings' cash burn, we think its cash runway was reassuring, while its increasing cash burn has us a bit worried. Cash burning companies are always on the riskier side of things, but after considering all of the factors discussed in this short piece, we're not too worried about its rate of cash burn. Taking a deeper dive, we've spotted 2 warning signs for Integrated Waste Solutions Group Holdings you should be aware of, and 1 of them is a bit concerning.

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.