Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. 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?

So, the natural question for Hipages Group Holdings (ASX:HPG) shareholders is whether they should be concerned by its rate of cash burn. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. Let's start with an examination of the business' cash, relative to its cash burn.

See our latest analysis for Hipages Group Holdings

How Long Is Hipages Group Holdings' 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 Hipages Group Holdings last reported its balance sheet in June 2021, it had zero debt and cash worth AU$32m. Looking at the last year, the company burnt through AU$312k. That means it had a cash runway of very many years as of June 2021. While this is only one measure of its cash burn situation, it certainly gives us the impression that holders have nothing to worry about. Depicted below, you can see how its cash holdings have changed over time. debt-equity-history-analysis

Is Hipages Group Holdings' Revenue Growing?

We're hesitant to extrapolate on the recent trend to assess its cash burn, because Hipages Group Holdings actually had positive free cash flow last year, so operating revenue growth is probably our best bet to measure, right now. While it's not that amazing, we still think that the 19% increase in revenue from operations was a positive. Clearly, however, the crucial factor is whether the company will grow its business going forward. So you might want to take a peek at how much the company is expected to grow in the next few years.



How Easily Can Hipages Group Holdings Raise Cash?

While Hipages Group Holdings is showing solid revenue growth, it's still worth considering how easily it could raise more cash, even just to fuel faster growth. Companies can raise capital through either debt or equity. Many companies end up issuing new shares to fund future 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.

Hipages Group Holdings has a market capitalisation of AU$471m and burnt through AU$312k last year, which is 0.07% of the company's market value. 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 Hipages Group Holdings' Cash Burn?

It may already be apparent to you that we're relatively comfortable with the way Hipages Group Holdings is burning through its cash. For example, we think its cash runway suggests that the company is on a good path. And even though its revenue growth wasn't quite as impressive, it was still a positive. Taking all the factors in this report into account, we're not at all worried about its cash burn, as the business appears well capitalized to spend as needs be. Taking an in-depth view of risks, we've identified 1 warning sign for Hipages Group Holdings that you should be aware of before investing.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this freelist of interesting companies, and this list of stocks growth stocks (according to analyst forecasts)

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.

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