Here's Why We're Not Too Worried About Beijing XIAOCHENG Technology Stock's (SZSE:300139) Cash Burn Situation

We can readily understand why investors are attracted to unprofitable companies. By way of example, Beijing XIAOCHENG Technology Stock (SZSE:300139) has seen its share price rise 163% over the last year, delighting many shareholders. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

In light of its strong share price run, we think now is a good time to investigate how risky Beijing XIAOCHENG Technology Stock's cash burn is. 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. Let's start with an examination of the business' cash, relative to its cash burn.

Check out our latest analysis for Beijing XIAOCHENG Technology Stock

How Long Is Beijing XIAOCHENG Technology Stock's Cash Runway?

A company's cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. When Beijing XIAOCHENG Technology Stock last reported its September 2024 balance sheet in October 2024, it had zero debt and cash worth CN¥367m. Importantly, its cash burn was CN¥51m over the trailing twelve months. So it had a cash runway of about 7.2 years from September 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.

How Well Is Beijing XIAOCHENG Technology Stock Growing?

One thing for shareholders to keep front in mind is that Beijing XIAOCHENG Technology Stock increased its cash burn by 1,246% in the last twelve months. While operating revenue was up over the same period, the 13% gain gives us scant comfort. 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 Beijing XIAOCHENG Technology Stock is building its business over time.

How Hard Would It Be For Beijing XIAOCHENG Technology Stock To Raise More Cash For Growth?

Beijing XIAOCHENG Technology Stock seems to be in a fairly good position, in terms of cash burn, but we still think it's worthwhile considering how easily it could raise more money if it wanted to. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. 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.

Beijing XIAOCHENG Technology Stock has a market capitalisation of CN¥4.9b and burnt through CN¥51m 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 Beijing XIAOCHENG Technology Stock's Cash Burn A Worry?

It may already be apparent to you that we're relatively comfortable with the way Beijing XIAOCHENG Technology Stock is burning through its cash. For example, we think its cash runway suggests that the company is on a good path. Although we do find its increasing cash burn to be a bit of a negative, once we consider the other metrics mentioned in this article together, the overall picture is one we are comfortable with. Considering all the factors discussed in this article, we're not overly concerned about the company's cash burn, although we do think shareholders should keep an eye on how it develops. For us, it's always important to consider risks around cash burn rates. But investors should look at a whole range of factors when researching a new stock. For example, it could be interesting to see how much the Beijing XIAOCHENG Technology Stock CEO receives in total remuneration.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies with significant insider holdings, 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.