We Think Lootom Telcovideo Network (wuxi) (SZSE:300555) Can Easily 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 should Lootom Telcovideo Network (wuxi) (SZSE:300555) shareholders 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). Let's start with an examination of the business' cash, relative to its cash burn.

Does Lootom Telcovideo Network (wuxi) Have A Long Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Lootom Telcovideo Network (wuxi) last reported its September 2024 balance sheet in October 2024, it had zero debt and cash worth CN¥33m. Importantly, its cash burn was CN¥9.3m over the trailing twelve months. Therefore, from September 2024 it had 3.6 years of cash runway. A runway of this length affords the company the time and space it needs to develop the business. You can see how its cash balance has changed over time in the image below.

See our latest analysis for Lootom Telcovideo Network (wuxi)

Is Lootom Telcovideo Network (wuxi)'s Revenue Growing?

Given that Lootom Telcovideo Network (wuxi) actually had positive free cash flow last year, before burning cash this year, we'll focus on its operating revenue to get a measure of the business trajectory. Unfortunately, the last year has been a disappointment, with operating revenue dropping 33% during the period. Of course, we've only taken a quick look at the stock's growth metrics, here. You can take a look at how Lootom Telcovideo Network (wuxi) has developed its business over time by checking this visualization of its revenue and earnings history.

How Easily Can Lootom Telcovideo Network (wuxi) Raise Cash?

Since its revenue growth is moving in the wrong direction, Lootom Telcovideo Network (wuxi) shareholders may wish to think ahead to when the company may need to raise more cash. Companies can raise capital through either debt or equity. 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.

Since it has a market capitalisation of CN¥2.1b, Lootom Telcovideo Network (wuxi)'s CN¥9.3m in cash burn equates to about 0.5% of its 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 Lootom Telcovideo Network (wuxi)'s Cash Burn A Worry?

As you can probably tell by now, we're not too worried about Lootom Telcovideo Network (wuxi)'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. 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. Readers need to have a sound understanding of business risks before investing in a stock, and we've spotted 1 warning sign for Lootom Telcovideo Network (wuxi) that potential shareholders should take into account before putting money into a stock.

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.

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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.