Guang Dong Sitong GroupLtd (SHSE:603838) 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, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

So should Guang Dong Sitong GroupLtd (SHSE:603838) shareholders be worried about its 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'.

Check out our latest analysis for Guang Dong Sitong GroupLtd

How Long Is Guang Dong Sitong GroupLtd's Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Guang Dong Sitong GroupLtd last reported its June 2024 balance sheet in August 2024, it had zero debt and cash worth CN¥504m. In the last year, its cash burn was CN¥3.8m. That means it had a cash runway of very many years as of 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. You can see how its cash balance has changed over time in the image below.

How Well Is Guang Dong Sitong GroupLtd Growing?

Happily, Guang Dong Sitong GroupLtd is travelling in the right direction when it comes to its cash burn, which is down 80% over the last year. And it could also show revenue growth of 3.4% in the same period. It seems to be growing nicely. Of course, we've only taken a quick look at the stock's growth metrics, here. You can take a look at how Guang Dong Sitong GroupLtd has developed its business over time by checking this visualization of its revenue and earnings history.

How Easily Can Guang Dong Sitong GroupLtd Raise Cash?

While Guang Dong Sitong GroupLtd 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. 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 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).

Guang Dong Sitong GroupLtd has a market capitalisation of CN¥1.4b and burnt through CN¥3.8m last year, which is 0.3% of the company's 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.

Is Guang Dong Sitong GroupLtd's Cash Burn A Worry?

As you can probably tell by now, we're not too worried about Guang Dong Sitong GroupLtd's cash burn. In particular, we think its cash runway stands out as evidence that the company is well on top of its spending. Its weak point is its revenue growth, but even that wasn't too bad! After considering a range of factors in this article, we're pretty relaxed about its cash burn, since the company seems to be in a good position to continue to fund its growth. Taking an in-depth view of risks, we've identified 1 warning sign for Guang Dong Sitong GroupLtd that you should be aware of before investing.

Of course Guang Dong Sitong GroupLtd may not be the best stock to buy. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.