We're Not Very Worried About Wisher Industrial's (TPE:1465) Cash Burn Rate

Just because a business does not make any money, does not mean that the stock will go down. 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 should Wisher Industrial (TPE:1465) 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.

See our latest analysis for Wisher Industrial

When Might Wisher Industrial Run Out Of Money?

A company's cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. As at December 2020, Wisher Industrial had cash of NT$473m and no debt. Looking at the last year, the company burnt through NT$99m. Therefore, from December 2020 it had 4.8 years of cash runway. A runway of this length affords the company the time and space it needs to develop the business. Depicted below, you can see how its cash holdings have changed over time.

How Well Is Wisher Industrial Growing?

Notably, Wisher Industrial actually ramped up its cash burn very hard and fast in the last year, by 145%, signifying heavy investment in the business. While that's concerning on it's own, the fact that operating revenue was actually down 40% over the same period makes us positively tremulous. 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. You can take a look at how Wisher Industrial has developed its business over time by checking this visualization of its revenue and earnings history.

Can Wisher Industrial Raise More Cash Easily?

While Wisher Industrial seems to be in a fairly good position, it's still worth considering how easily it could raise more cash, even just to fuel 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. 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).

Wisher Industrial's cash burn of NT$99m is about 7.5% of its NT$1.3b 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 Wisher Industrial's Cash Burn Situation?

On this analysis of Wisher Industrial's 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 3 warning signs for Wisher Industrial you should be aware of, and 1 of them is potentially serious.

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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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