Imagin Medical Inc. (IMEXF)

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Imagin Medical(CSE:IME)Is Very Risky Based On.Its Cash Burn

https://simplywall.st/stocks/ca/healthcare/cse-ime/imagin-medical-shares/news/imagin-medical-cseime-is-very-risky-based-on-its-cash-burn/

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, the natural question for Imagin Medical (CSE:IME) shareholders is whether they should be concerned by its rate of cash burn. For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. The first step is to compare its cash burn with its cash reserves, to give us its ‘cash runway’.

See our latest analysis for Imagin Medical

How Long Is Imagin Medical’s Cash Runway?
A company’s cash runway is calculated by dividing its cash hoard by its cash burn. When Imagin Medical last reported its balance sheet in March 2020, it had zero debt and cash worth CA$904k. Looking at the last year, the company burnt through CA$5.5m. Therefore, from March 2020 it had roughly 2 months of cash runway. To be frank we are alarmed by how short that cash runway is! You can see how its cash balance has changed over time in the image below.

CNSX:IME Historical Debt June 1st 2020
CNSX:IME Historical Debt June 1st 2020
How Is Imagin Medical’s Cash Burn Changing Over Time?
Because Imagin Medical isn’t currently generating revenue, we consider it an early-stage business. Nonetheless, we can still examine its cash burn trajectory as part of our assessment of its cash burn situation. Over the last year its cash burn actually increased by 45%, which suggests that management are increasing investment in future growth, but not too quickly. However, the company’s true cash runway will therefore be shorter than suggested above, if spending continues to increase. Admittedly, we’re a bit cautious of Imagin Medical due to its lack of significant operating revenues. So we’d generally prefer stocks from this list of stocks that have analysts forecasting growth.

Can Imagin Medical Raise More Cash Easily?
Since its cash burn is moving in the wrong direction, Imagin Medical shareholders may wish to think ahead to when the company may need to raise more cash. 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 to drive 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.

Imagin Medical’s cash burn of CA$5.5m is about 77% of its CA$7.1m market capitalisation. That’s very high expenditure relative to the company’s size, suggesting it is an extremely high risk stock.

How Risky Is Imagin Medical’s Cash Burn Situation?
As you can probably tell by now, we’re rather concerned about Imagin Medical’s cash burn. Take, for example, its cash runway, which suggests the company may have difficulty funding itself, in the future. While not as bad as its cash runway, its increasing cash burn is also a concern, and considering everything mentioned above, we’re struggling to find much to be optimistic about. Its cash burn burn situation feels about as relaxing as riding your bicycle home in the rain without so much as a jumper. The need for more cash seems just around the corner, and any dilution is likely to be rather severe. On another note, we conducted an in-depth investigation of the company, and identified 5 warning signs for Imagin Medical (3 are a bit concerning!) that you should be aware of before investing here.

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

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This article by Simply Wall St is general in nature. 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. Thank you for reading.