We're Hopeful That Shanghai Anlogic Infotech (SHSE:688107) 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. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

So should Shanghai Anlogic Infotech (SHSE:688107) shareholders be worried about its cash burn? For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. Let's start with an examination of the business' cash, relative to its cash burn.

View our latest analysis for Shanghai Anlogic Infotech

When Might Shanghai Anlogic Infotech Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In March 2024, Shanghai Anlogic Infotech had CN¥569m in cash, and was debt-free. Looking at the last year, the company burnt through CN¥82m. Therefore, from March 2024 it had 6.9 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. The image below shows how its cash balance has been changing over the last few years.

How Well Is Shanghai Anlogic Infotech Growing?

Happily, Shanghai Anlogic Infotech is travelling in the right direction when it comes to its cash burn, which is down 81% over the last year. Unfortunately, however, operating revenue dropped 32% during the same time frame. Considering the factors above, the company doesn’t fare badly when it comes to assessing how it is changing over time. Clearly, however, the crucial factor is whether the company will grow its business going forward. So you might want to take a peek at how much the company is expected to grow in the next few years.

How Hard Would It Be For Shanghai Anlogic Infotech To Raise More Cash For Growth?

There's no doubt Shanghai Anlogic Infotech seems to be in a fairly good position, when it comes to managing its cash burn, but even if it's only hypothetical, it's always worth asking how easily it could raise more money to fund growth. Companies can raise capital through either debt or equity. 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.

Shanghai Anlogic Infotech has a market capitalisation of CN¥8.3b and burnt through CN¥82m last year, which is 1.0% 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.

Is Shanghai Anlogic Infotech's Cash Burn A Worry?

It may already be apparent to you that we're relatively comfortable with the way Shanghai Anlogic Infotech is burning through its cash. For example, we think its cash runway suggests that the company is on a good path. Although its falling revenue does give us reason for pause, the other metrics we discussed in this article form a positive picture overall. 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. An in-depth examination of risks revealed 1 warning sign for Shanghai Anlogic Infotech that readers should think about before committing capital to this stock.

Of course Shanghai Anlogic Infotech may not be the best stock to buy. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.