Stock Analysis

Here's Why We're Not At All Concerned With Onano Industrial's (TWSE:6405) Cash Burn Situation

TWSE:6405
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Just because a business does not make any money, does not mean that the stock will go down. 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. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

So should Onano Industrial (TWSE:6405) 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. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

View our latest analysis for Onano Industrial

How Long Is Onano Industrial's Cash Runway?

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. When Onano Industrial last reported its September 2024 balance sheet in November 2024, it had zero debt and cash worth NT$604m. Importantly, its cash burn was NT$16m over the trailing twelve months. So it had a very long cash runway of many years from September 2024. 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.

debt-equity-history-analysis
TWSE:6405 Debt to Equity History January 13th 2025

How Well Is Onano Industrial Growing?

Given our focus on Onano Industrial's cash burn, we're delighted to see that it reduced its cash burn by a nifty 94%. But it was a bit disconcerting to see operating revenue down 34% in that time. On balance, we'd say the company is improving over time. Of course, we've only taken a quick look at the stock's growth metrics, here. You can take a look at how Onano Industrial has developed its business over time by checking this visualization of its revenue and earnings history.

Can Onano Industrial Raise More Cash Easily?

We are certainly impressed with the progress Onano Industrial 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. Companies can raise capital through either debt or equity. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund 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.

Onano Industrial's cash burn of NT$16m is about 0.8% of its NT$1.9b market capitalisation. That means it could easily issue a few shares to fund more growth, and might well be in a position to borrow cheaply.

So, Should We Worry About Onano Industrial's Cash Burn?

It may already be apparent to you that we're relatively comfortable with the way Onano Industrial is burning through its cash. In particular, we think its cash burn reduction 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. Separately, we looked at different risks affecting the company and spotted 4 warning signs for Onano Industrial (of which 2 are a bit concerning!) you should know about.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies, 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.