Companies Like Ping An Healthcare and Technology (HKG:1833) Are In A Position To Invest In Growth

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. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

So, the natural question for Ping An Healthcare and Technology (HKG:1833) shareholders is whether they should be concerned by its rate of cash burn. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

View our latest analysis for Ping An Healthcare and Technology

How Long Is Ping An Healthcare and Technology's Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at December 2021, Ping An Healthcare and Technology had cash of CN¥10b and no debt. Importantly, its cash burn was CN¥1.5b over the trailing twelve months. Therefore, from December 2021 it had 6.8 years of cash runway. Importantly, though, analysts think that Ping An Healthcare and Technology will reach cashflow breakeven before then. If that happens, then the length of its cash runway, today, would become a moot point. You can see how its cash balance has changed over time in the image below.

How Well Is Ping An Healthcare and Technology Growing?

Some investors might find it troubling that Ping An Healthcare and Technology is actually increasing its cash burn, which is up 27% in the last year. At least the revenue was up 6.8% during the period, even if it wasn't up by much. In light of the data above, we're fairly sanguine about the business growth trajectory. While the past is always worth studying, it is the future that matters most of all. So you might want to take a peek at how much the company is expected to grow in the next few years.

Can Ping An Healthcare and Technology Raise More Cash Easily?

We are certainly impressed with the progress Ping An Healthcare and Technology 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.

Ping An Healthcare and Technology's cash burn of CN¥1.5b is about 6.9% of its CN¥22b market capitalisation. 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 Ping An Healthcare and Technology's Cash Burn Situation?

As you can probably tell by now, we're not too worried about Ping An Healthcare and Technology's cash burn. For example, we think its cash runway suggests that the company is on a good path. While its increasing cash burn wasn't great, the other factors mentioned in this article more than make up for weakness on that measure. One real positive is that analysts are forecasting that the company will reach breakeven. Considering all the factors discussed in this article, we're not overly concerned about the company's cash burn, although we do think shareholders should keep an eye on how it develops. Taking an in-depth view of risks, we've identified 2 warning signs for Ping An Healthcare and Technology that you should be aware of before investing.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies insiders are buying, and this list of stocks growth stocks (according to analyst forecasts)

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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.