We're Keeping An Eye On Golden Faith Group Holdings' (HKG:2863) Cash Burn Rate

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 while the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.

So should Golden Faith Group Holdings (HKG:2863) shareholders 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'. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

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How Long Is Golden Faith Group Holdings' Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In September 2024, Golden Faith Group Holdings had HK$146m in cash, and was debt-free. Importantly, its cash burn was HK$39m over the trailing twelve months. That means it had a cash runway of about 3.7 years as of September 2024. There's no doubt that this is a reassuringly long runway. Depicted below, you can see how its cash holdings have changed over time.

See our latest analysis for Golden Faith Group Holdings

How Well Is Golden Faith Group Holdings Growing?

It was quite stunning to see that Golden Faith Group Holdings increased its cash burn by 4,953% over the last year. That does give us pause, and we can't take much solace in the operating revenue growth of 9.7% in the same time frame. In light of the above-mentioned, we're pretty wary of the trajectory the company seems to be on. Of course, we've only taken a quick look at the stock's growth metrics, here. You can take a look at how Golden Faith Group Holdings has developed its business over time by checking this visualization of its revenue and earnings history .

How Hard Would It Be For Golden Faith Group Holdings To Raise More Cash For Growth?

Golden Faith Group Holdings 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. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund 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 HK$220m, Golden Faith Group Holdings' HK$39m in cash burn equates to about 18% of its market value. As a result, we'd venture that the company could raise more cash for growth without much trouble, albeit at the cost of some dilution.

Is Golden Faith Group Holdings' Cash Burn A Worry?

Even though its increasing cash burn makes us a little nervous, we are compelled to mention that we thought Golden Faith Group Holdings' cash runway was relatively promising. While we're the kind of investors who are always a bit concerned about the risks involved with cash burning companies, the metrics we have discussed in this article leave us relatively comfortable about Golden Faith Group Holdings' situation. Separately, we looked at different risks affecting the company and spotted 3 warning signs for Golden Faith Group Holdings (of which 2 don't sit too well with us!) you should know about.

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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.