We Think Beijing Dataway HorizonLtd (SZSE:301169) Can Afford To Drive Business Growth

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 Dataway HorizonLtd (SZSE:301169) shareholders should be worried about its cash burn. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

See our latest analysis for Beijing Dataway HorizonLtd

Does Beijing Dataway HorizonLtd Have A Long Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at March 2024, Beijing Dataway HorizonLtd had cash of CN¥427m and no debt. Importantly, its cash burn was CN¥37m over the trailing twelve months. So it had a very long cash runway of many years from March 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. The image below shows how its cash balance has been changing over the last few years.

How Well Is Beijing Dataway HorizonLtd Growing?

One thing for shareholders to keep front in mind is that Beijing Dataway HorizonLtd increased its cash burn by 503% in the last twelve months. While operating revenue was up over the same period, the 11% gain gives us scant comfort. Considering both these metrics, we're a little concerned about how the company is developing. Of course, we've only taken a quick look at the stock's growth metrics, here. You can take a look at how Beijing Dataway HorizonLtd has developed its business over time by checking this visualization of its revenue and earnings history.

How Easily Can Beijing Dataway HorizonLtd Raise Cash?

Beijing Dataway HorizonLtd 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. 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 Dataway HorizonLtd's cash burn of CN¥37m is about 1.8% of its CN¥2.1b market capitalisation. That means it could easily issue a few shares to fund more growth, and might well be in a position to borrow cheaply.

So, Should We Worry About Beijing Dataway HorizonLtd's Cash Burn?

As you can probably tell by now, we're not too worried about Beijing Dataway HorizonLtd's cash burn. In particular, we think its cash runway stands out as evidence that the company is well on top of its spending. 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. Based on the factors mentioned in this article, we think its cash burn situation warrants some attention from shareholders, but we don't think they should be worried. On another note, we conducted an in-depth investigation of the company, and identified 2 warning signs for Beijing Dataway HorizonLtd (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.