We're Keeping An Eye On AGTech Holdings' (HKG:8279) Cash Burn Rate

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, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

So, the natural question for AGTech Holdings (HKG:8279) 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'. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

See our latest analysis for AGTech Holdings

When Might AGTech Holdings Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In June 2023, AGTech Holdings had HK$1.3b in cash, and was debt-free. Importantly, its cash burn was HK$1.6b over the trailing twelve months. So it had a cash runway of approximately 10 months from June 2023. That's quite a short cash runway, indicating the company must either reduce its annual cash burn or replenish its cash. Depicted below, you can see how its cash holdings have changed over time.

Is AGTech Holdings' Revenue Growing?

Given that AGTech Holdings actually had positive free cash flow last year, before burning cash this year, we'll focus on its operating revenue to get a measure of the business trajectory. As it happens, shareholders have good reason to be optimistic about the future since the company increased its operating revenue by 66% over the last year. Of course, we've only taken a quick look at the stock's growth metrics, here. You can take a look at how AGTech Holdings is growing revenue over time by checking this visualization of past revenue growth.

Can AGTech Holdings Raise More Cash Easily?

There's no doubt AGTech Holdings' revenue growth is impressive but even if it's only hypothetical, it's always worth asking how easily it could raise more money to fund further 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. 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.

Since it has a market capitalisation of HK$2.4b, AGTech Holdings' HK$1.6b in cash burn equates to about 69% of its market value. That's very high expenditure relative to the company's size, suggesting it is an extremely high risk stock.

How Risky Is AGTech Holdings' Cash Burn Situation?

Even though its cash burn relative to its market cap makes us a little nervous, we are compelled to mention that we thought AGTech Holdings' revenue growth was relatively promising. Considering all the measures mentioned in this report, we reckon that its cash burn is fairly risky, and if we held shares we'd be watching like a hawk for any deterioration. Taking an in-depth view of risks, we've identified 2 warning signs for AGTech Holdings that you should be aware of before investing.

Of course AGTech 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.