We're Not Worried About iCatch Technology's (GTSM:6695) Cash Burn

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 software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you'd have done very well indeed. 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 iCatch Technology (GTSM:6695) shareholders should 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 iCatch Technology

Does iCatch Technology 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. When iCatch Technology last reported its balance sheet in June 2020, it had zero debt and cash worth NT$358m. Looking at the last year, the company burnt through NT$33m. That means it had a cash runway of very many years as of June 2020. 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 iCatch Technology Growing?

Happily, iCatch Technology is travelling in the right direction when it comes to its cash burn, which is down 78% over the last year. Mundanely, though, operating revenue growth was flat. It seems to be growing nicely. In reality, this article only makes a short study of the company's growth data. This graph of historic earnings and revenue shows how iCatch Technology is building its business over time.

How Hard Would It Be For iCatch Technology To Raise More Cash For Growth?

We are certainly impressed with the progress iCatch 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. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. 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.

iCatch Technology's cash burn of NT$33m is about 2.1% of its NT$1.5b market capitalisation. So it could almost certainly just borrow a little to fund another year's growth, or else easily raise the cash by issuing a few shares.

How Risky Is iCatch Technology's Cash Burn Situation?

It may already be apparent to you that we're relatively comfortable with the way iCatch Technology is burning through its cash. In particular, we think its cash runway stands out as evidence that the company is well on top of its spending. Although its falling revenue does give us reason for pause, the other metrics we discussed in this article form a positive picture overall. After taking into account the various metrics mentioned in this report, we're pretty comfortable with how the company is spending its cash, as it seems on track to meet its needs over the medium term. On another note, we conducted an in-depth investigation of the company, and identified 3 warning signs for iCatch Technology (1 doesn't sit too well with us!) that you should be aware of before investing here.

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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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