We're Not Very Worried About Silicon Integrated Systems's (TPE:2363) 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. 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 Silicon Integrated Systems (TPE:2363) 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. Let's start with an examination of the business's cash, relative to its cash burn.

See our latest analysis for Silicon Integrated Systems

When Might Silicon Integrated Systems Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In December 2019, Silicon Integrated Systems had NT$979m in cash, and was debt-free. Looking at the last year, the company burnt through NT$307m. So it had a cash runway of about 3.2 years from December 2019. 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 Silicon Integrated Systems Growing?

Silicon Integrated Systems reduced its cash burn by 19% during the last year, which points to some degree of discipline. However, operating revenue was basically flat over that time period. On balance, we'd say the company is improving over time. In reality, this article only makes a short study of the company's growth data. You can take a look at how Silicon Integrated Systems has developed its business over time by checking this visualization of its revenue and earnings history.

How Easily Can Silicon Integrated Systems Raise Cash?

While Silicon Integrated Systems seems to be in a decent position, we reckon it is still worth thinking about how easily it could raise more cash, if that proved desirable. 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 to 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.

Silicon Integrated Systems's cash burn of NT$307m is about 7.0% of its NT$4.4b market capitalisation. Given that is a rather small percentage, it would probably be really easy for the company to fund another year's growth by issuing some new shares to investors, or even by taking out a loan.

So, Should We Worry About Silicon Integrated Systems's Cash Burn?

It may already be apparent to you that we're relatively comfortable with the way Silicon Integrated Systems 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. Based on the factors mentioned in this article, we think its cash burn situation warrants some attention from shareholders, but we don't think they should be worried. On another note, we conducted an in-depth investigation of the company, and identified 3 warning signs for Silicon Integrated Systems (1 doesn't sit too well with us!) that you should be aware of before investing here.

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)

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.

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