We're Not Very Worried About CITIC Niya Wine's (SHSE:600084) Cash Burn Rate

We can readily understand why investors are attracted to unprofitable companies. For example, although software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you'd have done very well indeed. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

So should CITIC Niya Wine (SHSE:600084) 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 CITIC Niya Wine

How Long Is CITIC Niya Wine's 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 CITIC Niya Wine last reported its September 2024 balance sheet in October 2024, it had zero debt and cash worth CN¥67m. Importantly, its cash burn was CN¥40m over the trailing twelve months. Therefore, from September 2024 it had roughly 20 months of cash runway. While that cash runway isn't too concerning, sensible holders would be peering into the distance, and considering what happens if the company runs out of cash. You can see how its cash balance has changed over time in the image below.

How Well Is CITIC Niya Wine Growing?

Notably, CITIC Niya Wine actually ramped up its cash burn very hard and fast in the last year, by 101%, signifying heavy investment in the business. As if that's not bad enough, the operating revenue also dropped by 15%, making us very wary indeed. Considering both these metrics, we're a little concerned about how the company is developing. In reality, this article only makes a short study of the company's growth data. This graph of historic earnings and revenue shows how CITIC Niya Wine is building its business over time.

How Hard Would It Be For CITIC Niya Wine To Raise More Cash For Growth?

While CITIC Niya Wine seems to be in a fairly good position, it's still worth considering how easily it could raise more cash, even just to fuel faster growth. 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.

CITIC Niya Wine's cash burn of CN¥40m is about 0.6% of its CN¥6.5b 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 CITIC Niya Wine's Cash Burn Situation?

On this analysis of CITIC Niya Wine's cash burn, we think its cash burn relative to its market cap was reassuring, while its increasing cash burn has us a bit worried. While we're the kind of investors who are always a bit concerned about the risks involved with cash burning companies, the metrics we have discussed in this article leave us relatively comfortable about CITIC Niya Wine's situation. Taking an in-depth view of risks, we've identified 1 warning sign for CITIC Niya Wine that you should be aware of before investing.

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.

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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.