We're Not Worried About Cashway FintechLtd's (SHSE:603106) Cash Burn

Just because a business does not make any money, does not mean that the stock will go down. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

So should Cashway FintechLtd (SHSE:603106) 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. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

View our latest analysis for Cashway FintechLtd

How Long Is Cashway FintechLtd'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 Cashway FintechLtd last reported its March 2024 balance sheet in April 2024, it had zero debt and cash worth CN¥782m. Looking at the last year, the company burnt through CN¥5.8m. 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. You can see how its cash balance has changed over time in the image below.

Is Cashway FintechLtd's Revenue Growing?

We're hesitant to extrapolate on the recent trend to assess its cash burn, because Cashway FintechLtd actually had positive free cash flow last year, so operating revenue growth is probably our best bet to measure, right now. Regrettably, the company's operating revenue moved in the wrong direction over the last twelve months, declining by 32%. In reality, this article only makes a short study of the company's growth data. This graph of historic earnings and revenue shows how Cashway FintechLtd is building its business over time.

How Hard Would It Be For Cashway FintechLtd To Raise More Cash For Growth?

Since its revenue growth is moving in the wrong direction, Cashway FintechLtd shareholders may wish to think ahead to when the company may need to raise more cash. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund 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).

Cashway FintechLtd has a market capitalisation of CN¥2.1b and burnt through CN¥5.8m last year, which is 0.3% of the company's market value. That means it could easily issue a few shares to fund more growth, and might well be in a position to borrow cheaply.

Is Cashway FintechLtd's Cash Burn A Worry?

It may already be apparent to you that we're relatively comfortable with the way Cashway FintechLtd is burning through its cash. In particular, we think its cash runway stands out as evidence that the company is well on top of its spending. Although its falling revenue does give us reason for pause, the other metrics we discussed in this article form a positive picture overall. 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. Taking a deeper dive, we've spotted 2 warning signs for Cashway FintechLtd you should be aware of, and 1 of them is a bit unpleasant.

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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.