We're Hopeful That Shenyang Yuanda Intellectual Industry GroupLtd (SZSE:002689) Will Use Its Cash Wisely

Just because a business does not make any money, does not mean that the stock will go down. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But while the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.

So, the natural question for Shenyang Yuanda Intellectual Industry GroupLtd (SZSE:002689) 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'. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

View our latest analysis for Shenyang Yuanda Intellectual Industry GroupLtd

When Might Shenyang Yuanda Intellectual Industry GroupLtd Run Out Of Money?

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 September 2024, Shenyang Yuanda Intellectual Industry GroupLtd had CN¥326m in cash, and was debt-free. Looking at the last year, the company burnt through CN¥91m. Therefore, from September 2024 it had 3.6 years of cash runway. A runway of this length affords the company the time and space it needs to develop the business. Depicted below, you can see how its cash holdings have changed over time.

How Well Is Shenyang Yuanda Intellectual Industry GroupLtd Growing?

One thing for shareholders to keep front in mind is that Shenyang Yuanda Intellectual Industry GroupLtd increased its cash burn by 1,978% in the last twelve months. As if that's not bad enough, the operating revenue also dropped by 13%, making us very wary indeed. Considering these two factors together makes us nervous about the direction the company seems to be heading. In reality, this article only makes a short study of the company's growth data. You can take a look at how Shenyang Yuanda Intellectual Industry GroupLtd has developed its business over time by checking this visualization of its revenue and earnings history.

Can Shenyang Yuanda Intellectual Industry GroupLtd Raise More Cash Easily?

Even though it seems like Shenyang Yuanda Intellectual Industry GroupLtd is developing its business nicely, we still like to consider how easily it could raise more money to accelerate growth. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund 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.

Shenyang Yuanda Intellectual Industry GroupLtd's cash burn of CN¥91m is about 1.9% of its CN¥4.8b market capitalisation. So it could almost certainly just borrow a little to fund another year's growth, or else easily raise the cash by issuing a few shares.

How Risky Is Shenyang Yuanda Intellectual Industry GroupLtd's Cash Burn Situation?

Even though its increasing cash burn makes us a little nervous, we are compelled to mention that we thought Shenyang Yuanda Intellectual Industry GroupLtd's cash runway was relatively promising. 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. Readers need to have a sound understanding of business risks before investing in a stock, and we've spotted 1 warning sign for Shenyang Yuanda Intellectual Industry GroupLtd that potential shareholders should take into account before putting money into a stock.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies with significant insider holdings, 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. 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.