We're Keeping An Eye On Jilin University Zhengyuan Information Technologies' (SZSE:003029) Cash Burn Rate

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, 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 the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

So should Jilin University Zhengyuan Information Technologies (SZSE:003029) 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. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

Check out our latest analysis for Jilin University Zhengyuan Information Technologies

Does Jilin University Zhengyuan Information Technologies 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. When Jilin University Zhengyuan Information Technologies last reported its March 2024 balance sheet in April 2024, it had zero debt and cash worth CN¥569m. Importantly, its cash burn was CN¥354m over the trailing twelve months. So it had a cash runway of approximately 19 months from March 2024. That's not too bad, but it's fair to say the end of the cash runway is in sight, unless cash burn reduces drastically. You can see how its cash balance has changed over time in the image below.

How Well Is Jilin University Zhengyuan Information Technologies Growing?

One thing for shareholders to keep front in mind is that Jilin University Zhengyuan Information Technologies increased its cash burn by 338% in the last twelve months. As if that's not bad enough, the operating revenue also dropped by 24%, making us very wary indeed. In light of the above-mentioned, we're pretty wary of the trajectory the company seems to be on. While the past is always worth studying, it is the future that matters most of all. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

Can Jilin University Zhengyuan Information Technologies Raise More Cash Easily?

Jilin University Zhengyuan Information Technologies revenue is declining and its cash burn is increasing, so many may be considering its need to raise more cash in the future. 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. By comparing a company's annual cash burn to its total market capitalisation, we can estimate roughly how many shares it would have to issue in order to run the company for another year (at the same burn rate).

Jilin University Zhengyuan Information Technologies' cash burn of CN¥354m is about 9.0% of its CN¥3.9b market capitalisation. That's a low proportion, so we figure the company would be able to raise more cash to fund growth, with a little dilution, or even to simply borrow some money.

So, Should We Worry About Jilin University Zhengyuan Information Technologies' Cash Burn?

Even though its increasing cash burn makes us a little nervous, we are compelled to mention that we thought Jilin University Zhengyuan Information Technologies' cash burn relative to its market cap was relatively promising. We don't think its cash burn is particularly problematic, but after considering the range of factors in this article, we do think shareholders should be monitoring how it changes over time. On another note, we conducted an in-depth investigation of the company, and identified 2 warning signs for Jilin University Zhengyuan Information Technologies (1 can't be ignored!) that you should be aware of before investing here.

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