Companies Like Gresgying Digital Energy TechnologyLtd (SHSE:600212) Are In A Position To Invest In Growth

We can readily understand why investors are attracted to unprofitable companies. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

So, the natural question for Gresgying Digital Energy TechnologyLtd (SHSE:600212) 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.

Check out our latest analysis for Gresgying Digital Energy TechnologyLtd

When Might Gresgying Digital Energy TechnologyLtd 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 2024, Gresgying Digital Energy TechnologyLtd had cash of CN¥285m and such minimal debt that we can ignore it for the purposes of this analysis. In the last year, its cash burn was CN¥129m. So it had a cash runway of about 2.2 years from September 2024. That's decent, giving the company a couple years to develop its business. You can see how its cash balance has changed over time in the image below.

How Well Is Gresgying Digital Energy TechnologyLtd Growing?

On balance, we think it's mildly positive that Gresgying Digital Energy TechnologyLtd trimmed its cash burn by 9.0% over the last twelve months. Revenue also improved during the period, increasing by 15%. On balance, we'd say the company is improving over time. Clearly, however, the crucial factor is whether the company will grow its business going forward. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

How Hard Would It Be For Gresgying Digital Energy TechnologyLtd To Raise More Cash For Growth?

Even though it seems like Gresgying Digital Energy TechnologyLtd is developing its business nicely, we still like to consider how easily it could raise more money to accelerate growth. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. 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.

Gresgying Digital Energy TechnologyLtd has a market capitalisation of CN¥5.9b and burnt through CN¥129m last year, which is 2.2% 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 Gresgying Digital Energy TechnologyLtd's Cash Burn A Worry?

It may already be apparent to you that we're relatively comfortable with the way Gresgying Digital Energy TechnologyLtd is burning through its cash. In particular, we think its cash burn relative to its market cap stands out as evidence that the company is well on top of its spending. Its weak point is its cash burn reduction, but even that wasn't too bad! 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. Its important for readers to be cognizant of the risks that can affect the company's operations, and we've picked out 1 warning sign for Gresgying Digital Energy TechnologyLtd that investors should know when investing in the stock.

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.