Polarean Imaging (LON:POLX) Is In A Good Position To Deliver On Growth Plans

Simply Wall St · 10/16 05:05

Just because a business does not make any money, does not mean that the stock will go down. For example, although software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you'd have done very well indeed. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

So should Polarean Imaging (LON:POLX) 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'. Let's start with an examination of the business' cash, relative to its cash burn.

Check out our latest analysis for Polarean Imaging

How Long Is Polarean Imaging'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. When Polarean Imaging last reported its June 2024 balance sheet in September 2024, it had zero debt and cash worth US$15m. Importantly, its cash burn was US$6.3m over the trailing twelve months. That means it had a cash runway of about 2.4 years as of June 2024. That's decent, giving the company a couple years to develop its business. The image below shows how its cash balance has been changing over the last few years.

debt-equity-history-analysis
AIM:POLX Debt to Equity History October 16th 2024

How Is Polarean Imaging's Cash Burn Changing Over Time?

In the last year, Polarean Imaging did book revenue of US$1.9m, but its revenue from operations was less, at just US$1.9m. Given how low that operating leverage is, we think it's too early to put much weight on the revenue growth, so we'll focus on how the cash burn is changing, instead. While it hardly paints a picture of imminent growth, the fact that it has reduced its cash burn by 52% over the last year suggests some degree of prudence. 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.

Can Polarean Imaging Raise More Cash Easily?

There's no doubt Polarean Imaging's rapidly reducing cash burn brings comfort, but even if it's only hypothetical, it's always worth asking how easily it could raise more money to fund further growth. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. 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.

Polarean Imaging's cash burn of US$6.3m is about 29% of its US$22m market capitalisation. That's not insignificant, and if the company had to sell enough shares to fund another year's growth at the current share price, you'd likely witness fairly costly dilution.

So, Should We Worry About Polarean Imaging's Cash Burn?

On this analysis of Polarean Imaging's cash burn, we think its cash runway was reassuring, while its cash burn relative to its market cap has us a bit worried. Based on the factors mentioned in this article, we think its cash burn situation warrants some attention from shareholders, but we don't think they should be worried. On another note, we conducted an in-depth investigation of the company, and identified 5 warning signs for Polarean Imaging (2 shouldn't be ignored!) that you should be aware of before investing here.

Of course Polarean Imaging may not be the best stock to buy. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.