We're Not Very Worried About Beijing SunwayWorld Science & Technology's (SZSE:301159) Cash Burn Rate

We can readily understand why investors are attracted to unprofitable companies. For example, although software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you'd have done very well indeed. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

Given this risk, we thought we'd take a look at whether Beijing SunwayWorld Science & Technology (SZSE:301159) 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). 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 SunwayWorld Science & Technology

How Long Is Beijing SunwayWorld Science & Technology's Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In June 2024, Beijing SunwayWorld Science & Technology had CN¥301m in cash, and was debt-free. Looking at the last year, the company burnt through CN¥104m. Therefore, from June 2024 it had 2.9 years of cash runway. Arguably, that's a prudent and sensible length of runway to have. The image below shows how its cash balance has been changing over the last few years.

How Well Is Beijing SunwayWorld Science & Technology Growing?

Beijing SunwayWorld Science & Technology reduced its cash burn by 20% during the last year, which points to some degree of discipline. And operating revenue was up by 13% too. On balance, we'd say the company is improving over time. 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 SunwayWorld Science & Technology is building its business over time.

How Hard Would It Be For Beijing SunwayWorld Science & Technology To Raise More Cash For Growth?

While Beijing SunwayWorld Science & Technology seems to be in a decent position, we reckon it is still worth thinking about how easily it could raise more cash, if that proved desirable. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. Commonly, a business will sell new shares in itself to raise cash and drive 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 SunwayWorld Science & Technology has a market capitalisation of CN¥2.2b and burnt through CN¥104m last year, which is 4.7% of the company's market value. 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.

How Risky Is Beijing SunwayWorld Science & Technology's Cash Burn Situation?

As you can probably tell by now, we're not too worried about Beijing SunwayWorld Science & Technology's cash burn. For example, we think its cash runway suggests that the company is on a good path. On this analysis its cash burn reduction was its weakest feature, but we are not concerned about it. 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. Its important for readers to be cognizant of the risks that can affect the company's operations, and we've picked out 2 warning signs for Beijing SunwayWorld Science & Technology that investors should know when investing in the stock.

Of course Beijing SunwayWorld Science & Technology 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.