We're Hopeful That KAISA Jiayun Technology (SZSE:300242) Will Use Its Cash Wisely

We can readily understand why investors are attracted to unprofitable companies. 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 while the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.

So should KAISA Jiayun Technology (SZSE:300242) shareholders be worried about its cash burn? In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

See our latest analysis for KAISA Jiayun Technology

Does KAISA Jiayun Technology Have A Long Cash Runway?

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. In June 2024, KAISA Jiayun Technology had CN¥73m in cash, and was debt-free. Importantly, its cash burn was CN¥59m over the trailing twelve months. That means it had a cash runway of around 15 months as of June 2024. 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.

Is KAISA Jiayun Technology's Revenue Growing?

Given that KAISA Jiayun Technology 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. Unfortunately, the last year has been a disappointment, with operating revenue dropping 42% during the period. In reality, this article only makes a short study of the company's growth data. You can take a look at how KAISA Jiayun Technology has developed its business over time by checking this visualization of its revenue and earnings history.

How Hard Would It Be For KAISA Jiayun Technology To Raise More Cash For Growth?

Given its problematic fall in revenue, KAISA Jiayun Technology shareholders should consider how the company could fund its growth, if it turns out it needs more cash. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. Commonly, a business will sell new shares in itself to raise cash and drive growth. By looking at a company's cash burn relative to its market capitalisation, we gain insight on how much shareholders would be diluted if the company needed to raise enough cash to cover another year's cash burn.

KAISA Jiayun Technology's cash burn of CN¥59m is about 3.4% of its CN¥1.8b market capitalisation. Given that is a rather small percentage, it would probably be really easy for the company to fund another year's growth by issuing some new shares to investors, or even by taking out a loan.

How Risky Is KAISA Jiayun Technology's Cash Burn Situation?

On this analysis of KAISA Jiayun Technology's cash burn, we think its cash burn relative to its market cap was reassuring, while its falling revenue 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 KAISA Jiayun Technology's situation. Its important for readers to be cognizant of the risks that can affect the company's operations, and we've picked out 2 warning signs for KAISA Jiayun Technology that investors should know when investing in the stock.

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.