We Think SinoSun Technology (SZSE:300333) Can Afford To Drive Business Growth

There's no doubt that money can be made by owning shares of unprofitable businesses. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

So, the natural question for SinoSun Technology (SZSE:300333) 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. Let's start with an examination of the business' cash, relative to its cash burn.

See our latest analysis for SinoSun Technology

When Might SinoSun Technology Run Out Of Money?

You can calculate a company's cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. As at September 2023, SinoSun Technology had cash of CN¥128m and no debt. Importantly, its cash burn was CN¥47m over the trailing twelve months. Therefore, from September 2023 it had 2.7 years of cash runway. Arguably, that's a prudent and sensible length of runway to have. Depicted below, you can see how its cash holdings have changed over time.

How Well Is SinoSun Technology Growing?

Some investors might find it troubling that SinoSun Technology is actually increasing its cash burn, which is up 2.8% in the last year. Also concerning, operating revenue was actually down by 10% in that time. In light of the data above, we're fairly sanguine about the business growth trajectory. In reality, this article only makes a short study of the company's growth data. This graph of historic earnings and revenue shows how SinoSun Technology is building its business over time.

How Hard Would It Be For SinoSun Technology To Raise More Cash For Growth?

SinoSun Technology 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. Companies can raise capital through either debt or equity. Commonly, a business will sell new shares in itself to raise cash and drive growth. By looking at a company's cash burn relative to its market capitalisation, we gain insight on how much shareholders would be diluted if the company needed to raise enough cash to cover another year's cash burn.

Since it has a market capitalisation of CN¥1.5b, SinoSun Technology's CN¥47m in cash burn equates to about 3.2% of its 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.

So, Should We Worry About SinoSun Technology's Cash Burn?

As you can probably tell by now, we're not too worried about SinoSun Technology's cash burn. In particular, we think its cash runway stands out as evidence that the company is well on top of its spending. While its falling revenue wasn't great, the other factors mentioned in this article more than make up for weakness on that measure. Considering all the factors discussed in this article, we're not overly concerned about the company's cash burn, although we do think shareholders should keep an eye on how it develops. Taking a deeper dive, we've spotted 2 warning signs for SinoSun Technology you should be aware of, and 1 of them is a bit unpleasant.

If you would prefer to check out another company with better fundamentals, then do not miss this free list of interesting companies, that have HIGH return on equity and low debt or this list of stocks which are all forecast to grow.

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.