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We're Not Very Worried About KORU Medical Systems' (NASDAQ:KRMD) Cash Burn Rate

·4 min read

There's no doubt that money can be made by owning shares of unprofitable businesses. 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, the natural question for KORU Medical Systems (NASDAQ:KRMD) shareholders is whether they should be concerned by its rate of 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). The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

Check out our latest analysis for KORU Medical Systems

When Might KORU Medical Systems Run Out Of Money?

A cash runway is defined as the length of time it would take a company to run out of money if it kept spending at its current rate of cash burn. When KORU Medical Systems last reported its balance sheet in June 2022, it had zero debt and cash worth US$18m. In the last year, its cash burn was US$8.3m. So it had a cash runway of about 2.2 years from June 2022. That's decent, giving the company a couple years to develop its business. Depicted below, you can see how its cash holdings have changed over time.

debt-equity-history-analysis
debt-equity-history-analysis

How Well Is KORU Medical Systems Growing?

Some investors might find it troubling that KORU Medical Systems is actually increasing its cash burn, which is up 19% in the last year. The silver lining is that revenue was up 20%, showing the business is growing at the top line. Considering the factors above, the company doesn’t fare badly when it comes to assessing how it is changing over time. 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 KORU Medical Systems To Raise More Cash For Growth?

Even though it seems like KORU Medical Systems 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. 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 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).

KORU Medical Systems' cash burn of US$8.3m is about 7.6% of its US$109m market capitalisation. 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.

Is KORU Medical Systems' Cash Burn A Worry?

On this analysis of KORU Medical Systems' cash burn, we think its cash burn relative to its market cap was reassuring, while its increasing cash burn 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. Its important for readers to be cognizant of the risks that can affect the company's operations, and we've picked out 1 warning sign for KORU Medical Systems that investors should know when investing in the stock.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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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