Shandong Sinobioway Biomedicine (SZSE:002581) Is In A Good Position To Deliver On Growth Plans

We can readily understand why investors are attracted to unprofitable companies. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

Given this risk, we thought we'd take a look at whether Shandong Sinobioway Biomedicine (SZSE:002581) 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). First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

Check out our latest analysis for Shandong Sinobioway Biomedicine

When Might Shandong Sinobioway Biomedicine Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at September 2024, Shandong Sinobioway Biomedicine had cash of CN¥429m and no debt. Looking at the last year, the company burnt through CN¥65m. Therefore, from September 2024 it had 6.6 years of cash runway. 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. Depicted below, you can see how its cash holdings have changed over time.

How Well Is Shandong Sinobioway Biomedicine Growing?

Shandong Sinobioway Biomedicine actually ramped up its cash burn by a whopping 55% in the last year, which shows it is boosting investment in the business. As if that's not bad enough, the operating revenue also dropped by 4.0%, making us very wary indeed. Taken together, we think these growth metrics are a little worrying. 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 Shandong Sinobioway Biomedicine is building its business over time.

How Easily Can Shandong Sinobioway Biomedicine Raise Cash?

Even though it seems like Shandong Sinobioway Biomedicine is developing its business nicely, we still like to consider how easily it could raise more money to accelerate growth. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund 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.

Since it has a market capitalisation of CN¥8.9b, Shandong Sinobioway Biomedicine's CN¥65m in cash burn equates to about 0.7% 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.

How Risky Is Shandong Sinobioway Biomedicine's Cash Burn Situation?

As you can probably tell by now, we're not too worried about Shandong Sinobioway Biomedicine's cash burn. For example, we think its cash runway suggests that the company is on a good path. While its increasing cash burn wasn't great, the other factors mentioned in this article more than make up for weakness on that measure. After taking into account the various metrics mentioned in this report, we're pretty comfortable with how the company is spending its cash, as it seems on track to meet its needs over the medium term. Taking an in-depth view of risks, we've identified 1 warning sign for Shandong Sinobioway Biomedicine 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.