Yahoo Finance We Think Hextar Healthcare Berhad (KLSE:HEXCARE) Needs To Drive Business Growth Carefully
We can readily understand why investors are attracted to unprofitable companies. 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 Hextar Healthcare Berhad (KLSE:HEXCARE) shareholders should be worried about its cash burn. For the purpose of this article, we'll define cash burn as the amount of cash the company is spending each year to fund its growth (also called its negative free cash flow). We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.
View our latest analysis for Hextar Healthcare Berhad
How Long Is Hextar Healthcare Berhad's Cash Runway?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at December 2023, Hextar Healthcare Berhad had cash of RM26m and such minimal debt that we can ignore it for the purposes of this analysis. In the last year, its cash burn was RM29m. Therefore, from December 2023 it had roughly 11 months of cash runway. That's quite a short cash runway, indicating the company must either reduce its annual cash burn or replenish its cash. You can see how its cash balance has changed over time in the image below.
How Well Is Hextar Healthcare Berhad Growing?
Hextar Healthcare Berhad reduced its cash burn by 18% during the last year, which points to some degree of discipline. Unfortunately, however, operating revenue declined by 12% during the period. Considering both these factors, we're not particularly excited by its growth profile. In reality, this article only makes a short study of the company's growth data. This graph of historic earnings and revenue shows how Hextar Healthcare Berhad is building its business over time.
How Hard Would It Be For Hextar Healthcare Berhad To Raise More Cash For Growth?
Given Hextar Healthcare Berhad's revenue is receding, there's a considerable chance it will eventually need to raise more money to spend on driving growth. Companies can raise capital through either debt or equity. 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.
Hextar Healthcare Berhad's cash burn of RM29m is about 12% of its RM245m market capitalisation. Given that situation, it's fair to say the company wouldn't have much trouble raising more cash for growth, but shareholders would be somewhat diluted.
So, Should We Worry About Hextar Healthcare Berhad's Cash Burn?
On this analysis of Hextar Healthcare Berhad's cash burn, we think its cash burn relative to its market cap was reassuring, while its cash runway has us a bit worried. We don't think its cash burn is particularly problematic, but after considering the range of factors in this article, we do think shareholders should be monitoring how it changes over time. On another note, Hextar Healthcare Berhad has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about.
If you would prefer to check out another company with better fundamentals, then do not miss this free list of interesting companies, that have HIGH return on equity and low debt or this list of stocks which are all forecast to grow.
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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.
