We Think Yunhong Guixin Group Holdings (HKG:8349) Can Afford To Drive Business Growth

Just because a business does not make any money, does not mean that the stock will go down. For example, although software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you'd have done very well indeed. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

So, the natural question for Yunhong Guixin Group Holdings (HKG:8349) 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. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

View our latest analysis for Yunhong Guixin Group Holdings

When Might Yunhong Guixin Group Holdings Run Out Of Money?

A company's cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. When Yunhong Guixin Group Holdings last reported its December 2023 balance sheet in April 2024, it had zero debt and cash worth CN¥7.3m. Looking at the last year, the company burnt through CN¥3.2m. Therefore, from December 2023 it had 2.3 years of cash runway. Arguably, that's a prudent and sensible length of runway to have. You can see how its cash balance has changed over time in the image below.

How Well Is Yunhong Guixin Group Holdings Growing?

Given our focus on Yunhong Guixin Group Holdings' cash burn, we're delighted to see that it reduced its cash burn by a nifty 88%. But it was a bit disconcerting to see operating revenue down 24% in that time. Considering the factors above, the company doesn’t fare badly when it comes to assessing how it is changing over time. In reality, this article only makes a short study of the company's growth data. You can take a look at how Yunhong Guixin Group Holdings has developed its business over time by checking this visualization of its revenue and earnings history.

How Hard Would It Be For Yunhong Guixin Group Holdings To Raise More Cash For Growth?

We are certainly impressed with the progress Yunhong Guixin Group Holdings has made over the last year, but it is also worth considering how costly it would be if it wanted to raise more cash to fund faster growth. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. 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.

Yunhong Guixin Group Holdings has a market capitalisation of CN¥229m and burnt through CN¥3.2m last year, which is 1.4% 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 Yunhong Guixin Group Holdings' Cash Burn A Worry?

It may already be apparent to you that we're relatively comfortable with the way Yunhong Guixin Group Holdings is burning through its cash. For example, we think its cash burn reduction 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 taking into account the various metrics mentioned in this report, we're pretty comfortable with how the company is spending its cash. Separately, we looked at different risks affecting the company and spotted 3 warning signs for Yunhong Guixin Group Holdings (of which 1 doesn't sit too well with us!) you should know about.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com