We're Interested To See How BaWang International (Group) Holding (HKG:1338) Uses Its Cash Hoard To Grow

Just because a business does not make any money, does not mean that the stock will go down. For example, although Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

So, the natural question for BaWang International (Group) Holding (HKG:1338) shareholders is whether they should be concerned by its rate of 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). The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

View our latest analysis for BaWang International (Group) Holding

When Might BaWang International (Group) Holding Run Out Of Money?

A cash runway is defined as the length of time it would take a company to run out of money if it kept spending at its current rate of cash burn. In December 2021, BaWang International (Group) Holding had CN¥63m in cash, and was debt-free. Importantly, its cash burn was CN¥65k over the trailing twelve months. So it had a very long cash runway of many years from December 2021. 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. The image below shows how its cash balance has been changing over the last few years.

Is BaWang International (Group) Holding's Revenue Growing?

We're hesitant to extrapolate on the recent trend to assess its cash burn, because BaWang International (Group) Holding actually had positive free cash flow last year, so operating revenue growth is probably our best bet to measure, right now. In fact, operating revenue has stayed pretty steady over the last twelve months. In reality, this article only makes a short study of the company's growth data. This graph of historic earnings and revenue shows how BaWang International (Group) Holding is building its business over time.

How Hard Would It Be For BaWang International (Group) Holding To Raise More Cash For Growth?

Since its revenue growth is moving in the wrong direction, BaWang International (Group) Holding 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. 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 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.

BaWang International (Group) Holding's cash burn of CN¥65k is about 0.04% of its CN¥178m market capitalisation. So it could almost certainly just borrow a little to fund another year's growth, or else easily raise the cash by issuing a few shares.

How Risky Is BaWang International (Group) Holding's Cash Burn Situation?

It may already be apparent to you that we're relatively comfortable with the way BaWang International (Group) Holding is burning through its cash. For example, we think its cash runway suggests that the company is on a good path. While its falling revenue wasn't great, the other factors mentioned in this article more than make up for weakness on that measure. After considering a range of factors in this article, we're pretty relaxed about its cash burn, since the company seems to be in a good position to continue to fund its growth. On another note, BaWang International (Group) Holding has 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

Of course BaWang International (Group) Holding may not be the best stock to buy. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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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.