We're Interested To See How Jinfa Labi Maternity & Baby Articles (SZSE:002762) Uses Its Cash Hoard To Grow

Just because a business does not make any money, does not mean that the stock will go down. 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. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

So should Jinfa Labi Maternity & Baby Articles (SZSE:002762) shareholders 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). Let's start with an examination of the business' cash, relative to its cash burn.

See our latest analysis for Jinfa Labi Maternity & Baby Articles

How Long Is Jinfa Labi Maternity & Baby Articles' 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. When Jinfa Labi Maternity & Baby Articles last reported its September 2024 balance sheet in October 2024, it had zero debt and cash worth CN¥182m. Looking at the last year, the company burnt through CN¥6.8m. So it had a very long cash runway of many years from September 2024. Even though this is but one measure of the company's cash burn, the thought of such a long cash runway warms our bellies in a comforting way. The image below shows how its cash balance has been changing over the last few years.

Is Jinfa Labi Maternity & Baby Articles' Revenue Growing?

Given that Jinfa Labi Maternity & Baby Articles actually had positive free cash flow last year, before burning cash this year, we'll focus on its operating revenue to get a measure of the business trajectory. Regrettably, the company's operating revenue moved in the wrong direction over the last twelve months, declining by 12%. Of course, we've only taken a quick look at the stock's growth metrics, here. You can take a look at how Jinfa Labi Maternity & Baby Articles has developed its business over time by checking this visualization of its revenue and earnings history.

Can Jinfa Labi Maternity & Baby Articles Raise More Cash Easily?

Since its revenue growth is moving in the wrong direction, Jinfa Labi Maternity & Baby Articles 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. 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.

Jinfa Labi Maternity & Baby Articles has a market capitalisation of CN¥1.8b and burnt through CN¥6.8m last year, which is 0.4% 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.

So, Should We Worry About Jinfa Labi Maternity & Baby Articles' Cash Burn?

It may already be apparent to you that we're relatively comfortable with the way Jinfa Labi Maternity & Baby Articles is burning through its cash. For example, we think its cash runway suggests that the company is on a good path. While its falling revenue wasn't great, the other factors mentioned in this article more than make up for weakness on that measure. 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 a deeper dive, we've spotted 3 warning signs for Jinfa Labi Maternity & Baby Articles you should be aware of, and 2 of them are a bit concerning.

If you would prefer to check out another company with better fundamentals, then do not miss this free list of interesting companies, that have HIGH return on equity and low debt or this list of stocks which are all forecast to grow.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.