Is Jiangsu Huasheng Tianlong PhotoelectricLtd (SZSE:300029) In A Good Position To Deliver On Growth Plans?

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

So, the natural question for Jiangsu Huasheng Tianlong PhotoelectricLtd (SZSE:300029) 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. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

View our latest analysis for Jiangsu Huasheng Tianlong PhotoelectricLtd

Does Jiangsu Huasheng Tianlong PhotoelectricLtd Have A Long 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 September 2024, Jiangsu Huasheng Tianlong PhotoelectricLtd had CN¥15m in cash, and was debt-free. Looking at the last year, the company burnt through CN¥23m. Therefore, from September 2024 it had roughly 8 months of cash runway. To be frank, this kind of short runway puts us on edge, as it indicates the company must reduce its cash burn significantly, or else raise cash imminently. You can see how its cash balance has changed over time in the image below.

Is Jiangsu Huasheng Tianlong PhotoelectricLtd's Revenue Growing?

We're hesitant to extrapolate on the recent trend to assess its cash burn, because Jiangsu Huasheng Tianlong PhotoelectricLtd actually had positive free cash flow last year, so operating revenue growth is probably our best bet to measure, right now. Unfortunately, the last year has been a disappointment, with operating revenue dropping 17% during the period. In reality, this article only makes a short study of the company's growth data. This graph of historic earnings and revenue shows how Jiangsu Huasheng Tianlong PhotoelectricLtd is building its business over time.

Can Jiangsu Huasheng Tianlong PhotoelectricLtd Raise More Cash Easily?

Since its revenue growth is moving in the wrong direction, Jiangsu Huasheng Tianlong PhotoelectricLtd shareholders may wish to think ahead to when the company may need to raise more cash. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. Commonly, a business will sell new shares in itself to raise cash and 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.

Since it has a market capitalisation of CN¥1.0b, Jiangsu Huasheng Tianlong PhotoelectricLtd's CN¥23m in cash burn equates to about 2.2% of its market value. That means it could easily issue a few shares to fund more growth, and might well be in a position to borrow cheaply.

Is Jiangsu Huasheng Tianlong PhotoelectricLtd's Cash Burn A Worry?

On this analysis of Jiangsu Huasheng Tianlong PhotoelectricLtd's cash burn, we think its cash burn relative to its market cap was reassuring, while its cash runway has us a bit worried. Even though we don't think it has a problem with its cash burn, the analysis we've done in this article does suggest that shareholders should give some careful thought to the potential cost of raising more money in the future. Readers need to have a sound understanding of business risks before investing in a stock, and we've spotted 1 warning sign for Jiangsu Huasheng Tianlong PhotoelectricLtd 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.