Hebei Sailhero Environmental Protection High-techLtd (SZSE:300137) Is In A Strong Position To Grow Its Business

Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. 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.

Given this risk, we thought we'd take a look at whether Hebei Sailhero Environmental Protection High-techLtd (SZSE:300137) shareholders should be worried about its 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'.

View our latest analysis for Hebei Sailhero Environmental Protection High-techLtd

When Might Hebei Sailhero Environmental Protection High-techLtd 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 Hebei Sailhero Environmental Protection High-techLtd last reported its June 2024 balance sheet in August 2024, it had zero debt and cash worth CN¥464m. In the last year, its cash burn was CN¥27m. So it had a very long cash runway of many years from June 2024. While this is only one measure of its cash burn situation, it certainly gives us the impression that holders have nothing to worry about. Depicted below, you can see how its cash holdings have changed over time.

How Well Is Hebei Sailhero Environmental Protection High-techLtd Growing?

Happily, Hebei Sailhero Environmental Protection High-techLtd is travelling in the right direction when it comes to its cash burn, which is down 71% over the last year. But it was a bit disconcerting to see operating revenue down 9.1% in that time. Considering the factors above, the company doesn’t fare badly when it comes to assessing how it is changing over time. Of course, we've only taken a quick look at the stock's growth metrics, here. This graph of historic earnings and revenue shows how Hebei Sailhero Environmental Protection High-techLtd is building its business over time.

How Easily Can Hebei Sailhero Environmental Protection High-techLtd Raise Cash?

While Hebei Sailhero Environmental Protection High-techLtd seems to be in a decent position, we reckon it is still worth thinking about how easily it could raise more cash, if that proved desirable. Companies can raise capital through either debt or equity. 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.

Since it has a market capitalisation of CN¥2.6b, Hebei Sailhero Environmental Protection High-techLtd's CN¥27m in cash burn equates to about 1.1% of its market value. 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.

So, Should We Worry About Hebei Sailhero Environmental Protection High-techLtd's Cash Burn?

It may already be apparent to you that we're relatively comfortable with the way Hebei Sailhero Environmental Protection High-techLtd is burning through its cash. In particular, we think its cash runway stands out as evidence that the company is well on top of its spending. Although its falling revenue does give us reason for pause, the other metrics we discussed in this article form a positive picture overall. After taking into account the various metrics mentioned in this report, we're pretty comfortable with how the company is spending its cash, as it seems on track to meet its needs over the medium term. An in-depth examination of risks revealed 1 warning sign for Hebei Sailhero Environmental Protection High-techLtd that readers should think about before committing capital to this stock.

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