We can readily understand why investors are attracted to unprofitable companies. 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 EMvision Medical Devices (ASX:EMV) shareholders be worried about its cash burn? In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

See our latest analysis for EMvision Medical Devices

How Long Is EMvision Medical Devices' Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at June 2021, EMvision Medical Devices had cash of AU$9.7m and no debt. Importantly, its cash burn was AU$4.6m over the trailing twelve months. Therefore, from June 2021 it had 2.1 years of cash runway. Arguably, that's a prudent and sensible length of runway to have. The image below shows how its cash balance has been changing over the last few years. debt-equity-history-analysis

How Well Is EMvision Medical Devices Growing?

Some investors might find it troubling that EMvision Medical Devices is actually increasing its cash burn, which is up 42% in the last year. At least the revenue was up 10% during the period, even if it wasn't up by much. Considering both these factors, we're not particularly excited by its growth profile. Of course, we've only taken a quick look at the stock's growth metrics, here. You can take a look at how EMvision Medical Devices has developed its business over time by checking  this visualization of its revenue and earnings history.

How Hard Would It Be For EMvision Medical Devices To Raise More Cash For Growth?

Even though it seems like EMvision Medical Devices is developing its business nicely, we still like to consider how easily it could raise more money to accelerate 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. 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.



EMvision Medical Devices has a market capitalisation of AU$165m and burnt through AU$4.6m last year, which is 2.8% of the company's market value. 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.

Is EMvision Medical Devices' Cash Burn A Worry?

On this analysis of EMvision Medical Devices' cash burn, we think its cash burn relative to its market cap was reassuring, while its increasing cash burn has us a bit worried. Considering all the factors discussed in this article, we're not overly concerned about the company's cash burn, although we do think shareholders should keep an eye on how it develops. Separately, we looked at different risks affecting the company and spotted 4 warning signs for EMvision Medical Devices (of which 1 is a bit unpleasant!) you should know about.

Of course EMvision Medical Devices may not be the best stock to buy. So you may wish to see this freecollection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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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.