We’re not worried about MPH Health Care’s cash burn (FRA: 93M1)
There is no doubt that it is possible to make money by owning shares of unprofitable companies. For example, although software-as-a-service company Salesforce.com lost money for years as it grew recurring revenue, if you had held stock since 2005, you would have done very well. However, only a fool would ignore the risk of a loss-making company burning through its cash too quickly.
So should MPH Healthcare (ENG:93M1) are shareholders concerned about its consumption of cash? For the purposes of this article, we will define cash burn as the amount of money the business spends each year to fund its growth (also known as negative free cash flow). First, we will determine its cash trail by comparing its cash consumption with its cash reserves.
Check out our latest analysis for MPH Health Care
How long does the MPH Health Care cash trail last?
You can calculate a company’s cash trail by dividing the amount of cash it has on hand by the rate at which it spends that money. When MPH Health Care last published its balance sheet in December 2021, it had no debt and cash worth €4.4 million. Last year, its cash burn was 1.1 million euros. That means it had a cash trail of around 4.1 years in December 2021. Importantly, the only analyst we see covering the stock thinks MPH Health Care will break even before then. In this case, he may never reach the end of his cash trail. You can see how his cash balance has changed over time in the image below.
How is MPH Health Care’s cash burn changing over time?
Although MPH Health Care has recorded statutory a turnover of 14 million euros in the last year, it did not generate any income operations. This means that we consider this to be a pre-revenue business, and will focus our analysis of growth on cash burn, for now. Notably, its cash burn has actually fallen by 62% over the past year, which is a real plus in terms of resilience, but uninspiring in terms of investing for growth. Obviously, however, the crucial factor is whether the company will expand its business in the future. For this reason, it makes a lot of sense to take a look at our analysts’ forecasts for the company.
How difficult would it be for MPH Health Care to raise more money for growth?
There’s no doubt that MPH Health Care’s rapid reduction in cash burn brings comfort, but even if it’s only hypothetical, it’s still worth wondering how easily it could raise more cash. money to fund future growth. In general, a listed company can raise new funds by issuing shares or by going into debt. Typically, a company will sell new stock on its own to raise cash and drive growth. By looking at a company’s cash burn relative to its market capitalization, we gain insight into how much of a shareholder base would be diluted if the company needed to raise enough cash to cover a company’s cash burn. another year.
MPH Health Care has a market cap of €76m and burned €1.1m last year, or 1.4% of the company’s market value. This means it could easily issue a few shares to fund more growth and may well be able to borrow cheaply.
How risky is MPH Health Care’s cash burn situation?
It may already be obvious to you that we are relatively comfortable with how MPH Health Care spends its money. In particular, we think its cash trail stands out as proof that the company is on top of spending. And even his reduction in cash burn was very encouraging. It is clearly very positive to see that at least one analyst predicts that the company will soon break even. After considering the various metrics mentioned in this report, we are quite comfortable with how the company is spending its money, as it appears to be on track to meet its medium-term needs. Readers should have a good understanding of business risks before investing in any stock, and we have spotted 2 warning signs for MPH Health Care potential shareholders should consider before investing in a stock.
Sure, you might find a fantastic investment by looking elsewhere. So take a look at this free list of interesting companies, and this list of growth stocks (according to analyst forecasts)
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.