We're Hopeful That Beijing Quanshi World Online Network Information (SZSE:002995) Will Use Its Cash Wisely

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 the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

Given this risk, we thought we'd take a look at whether Beijing Quanshi World Online Network Information (SZSE:002995) 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). We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

View our latest analysis for Beijing Quanshi World Online Network Information

When Might Beijing Quanshi World Online Network Information Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Beijing Quanshi World Online Network Information last reported its June 2024 balance sheet in August 2024, it had zero debt and cash worth CN¥400m. Importantly, its cash burn was CN¥43m over the trailing twelve months. So it had a cash runway of about 9.2 years from June 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. You can see how its cash balance has changed over time in the image below.

Is Beijing Quanshi World Online Network Information's Revenue Growing?

We're hesitant to extrapolate on the recent trend to assess its cash burn, because Beijing Quanshi World Online Network Information actually had positive free cash flow last year, so operating revenue growth is probably our best bet to measure, right now. Regrettably, the company's operating revenue moved in the wrong direction over the last twelve months, declining by 34%. 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 Beijing Quanshi World Online Network Information is building its business over time.

Can Beijing Quanshi World Online Network Information Raise More Cash Easily?

Since its revenue growth is moving in the wrong direction, Beijing Quanshi World Online Network Information 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 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).

Since it has a market capitalisation of CN¥2.6b, Beijing Quanshi World Online Network Information's CN¥43m in cash burn equates to about 1.7% 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 Beijing Quanshi World Online Network Information's Cash Burn?

As you can probably tell by now, we're not too worried about Beijing Quanshi World Online Network Information's cash burn. 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. Looking at all the measures in this article, together, we're not worried about its rate of cash burn; the company seems well on top of its medium-term spending needs. Readers need to have a sound understanding of business risks before investing in a stock, and we've spotted 1 warning sign for Beijing Quanshi World Online Network Information 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 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.