Here's Why We're Not Too Worried About Thruvision Group's (LON:THRU) Cash Burn Situation

Simply Wall St · 10/15 05:03

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. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

So should Thruvision Group (LON:THRU) shareholders be worried about its cash burn? In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

View our latest analysis for Thruvision Group

How Long Is Thruvision Group's Cash Runway?

You can calculate a company's cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. In March 2024, Thruvision Group had UK£4.1m in cash, and was debt-free. In the last year, its cash burn was UK£1.4m. Therefore, from March 2024 it had 2.8 years of cash runway. Importantly, analysts think that Thruvision Group will reach cashflow breakeven in 3 years. That means it doesn't have a great deal of breathing room, but it shouldn't really need more cash, considering that cash burn should be continually reducing. You can see how its cash balance has changed over time in the image below.

debt-equity-history-analysis
AIM:THRU Debt to Equity History October 15th 2024

How Well Is Thruvision Group Growing?

We reckon the fact that Thruvision Group managed to shrink its cash burn by 45% over the last year is rather encouraging. Unfortunately, however, operating revenue declined by 37% during the period. In light of the data above, we're fairly sanguine about the business growth trajectory. While the past is always worth studying, it is the future that matters most of all. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

How Hard Would It Be For Thruvision Group To Raise More Cash For Growth?

Even though it seems like Thruvision Group is developing its business nicely, we still like to consider how easily it could raise more money to accelerate growth. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. Commonly, a business will sell new shares in itself to raise cash and drive growth. By comparing a company's annual cash burn to its total market capitalisation, we can estimate roughly how many shares it would have to issue in order to run the company for another year (at the same burn rate).

Thruvision Group has a market capitalisation of UK£18m and burnt through UK£1.4m last year, which is 7.9% of the company's market value. Given that is a rather small percentage, it would probably be really easy for the company to fund another year's growth by issuing some new shares to investors, or even by taking out a loan.

So, Should We Worry About Thruvision Group's Cash Burn?

As you can probably tell by now, we're not too worried about Thruvision Group's cash burn. For example, we think its cash runway suggests that the company is on a good path. While we must concede that its falling revenue is a bit worrying, the other factors mentioned in this article provide great comfort when it comes to the cash burn. Shareholders can take heart from the fact that analysts are forecasting it will reach breakeven. 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. Taking an in-depth view of risks, we've identified 3 warning signs for Thruvision Group 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 free list of interesting companies, and this list of stocks growth stocks (according to analyst forecasts)