We're Hopeful That Beijing XIAOCHENG Technology Stock (SZSE:300139) Will Use Its Cash Wisely

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. 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, the natural question for Beijing XIAOCHENG Technology Stock (SZSE:300139) shareholders is whether they should be concerned by its rate of 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 Beijing XIAOCHENG Technology Stock

Does Beijing XIAOCHENG Technology Stock Have A Long Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Beijing XIAOCHENG Technology Stock last reported its March 2024 balance sheet in April 2024, it had zero debt and cash worth CN¥355m. Looking at the last year, the company burnt through CN¥36m. So it had a cash runway of about 9.7 years from March 2024. While this is only one measure of its cash burn situation, it certainly gives us the impression that holders have nothing to worry about. The image below shows how its cash balance has been changing over the last few years.

How Well Is Beijing XIAOCHENG Technology Stock Growing?

We reckon the fact that Beijing XIAOCHENG Technology Stock managed to shrink its cash burn by 36% over the last year is rather encouraging. Revenue also improved during the period, increasing by 3.3%. On balance, we'd say the company is improving over time. Of course, we've only taken a quick look at the stock's growth metrics, here. You can take a look at how Beijing XIAOCHENG Technology Stock has developed its business over time by checking this visualization of its revenue and earnings history.

How Easily Can Beijing XIAOCHENG Technology Stock Raise Cash?

We are certainly impressed with the progress Beijing XIAOCHENG Technology Stock has made over the last year, but it is also worth considering how costly it would be if it wanted to raise more cash to fund faster growth. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. 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¥3.5b and burnt through CN¥36m 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.

So, Should We Worry About Beijing XIAOCHENG Technology Stock's Cash Burn?

As you can probably tell by now, we're not too worried about Beijing XIAOCHENG Technology Stock's cash burn. In particular, we think its cash runway stands out as evidence that the company is well on top of its spending. Its weak point is its revenue growth, but even that wasn't too bad! 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. Its important for readers to be cognizant of the risks that can affect the company's operations, and we've picked out 1 warning sign for Beijing XIAOCHENG Technology Stock that investors should know when investing in the stock.

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)

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.