We Think Sichuan Kelun-Biotech Biopharmaceutical (HKG:6990) Can Easily Afford To Drive Business Growth

Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. 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. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

Given this risk, we thought we'd take a look at whether Sichuan Kelun-Biotech Biopharmaceutical (HKG:6990) shareholders should 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.

Check out our latest analysis for Sichuan Kelun-Biotech Biopharmaceutical

When Might Sichuan Kelun-Biotech Biopharmaceutical Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Sichuan Kelun-Biotech Biopharmaceutical last reported its December 2023 balance sheet in April 2024, it had zero debt and cash worth CN¥2.5b. In the last year, its cash burn was CN¥23m. So it had a very long cash runway of many years from December 2023. Notably, however, analysts think that Sichuan Kelun-Biotech Biopharmaceutical will break even (at a free cash flow level) before then. If that happens, then the length of its cash runway, today, would become a moot point. Depicted below, you can see how its cash holdings have changed over time.

How Well Is Sichuan Kelun-Biotech Biopharmaceutical Growing?

Given our focus on Sichuan Kelun-Biotech Biopharmaceutical's cash burn, we're delighted to see that it reduced its cash burn by a nifty 93%. This reduction was no doubt supported by its strong revenue growth of 92% in the same period. Considering these factors, we're fairly impressed by its growth trajectory. While the past is always worth studying, it is the future that matters most of all. 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 Sichuan Kelun-Biotech Biopharmaceutical To Raise More Cash For Growth?

There's no doubt Sichuan Kelun-Biotech Biopharmaceutical seems to be in a fairly good position, when it comes to managing its cash burn, but even if it's only hypothetical, it's always worth asking how easily it could raise more money to fund 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. 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.

Sichuan Kelun-Biotech Biopharmaceutical's cash burn of CN¥23m is about 0.07% of its CN¥35b 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.

Is Sichuan Kelun-Biotech Biopharmaceutical's Cash Burn A Worry?

It may already be apparent to you that we're relatively comfortable with the way Sichuan Kelun-Biotech Biopharmaceutical is burning through its cash. In particular, we think its cash burn reduction stands out as evidence that the company is well on top of its spending. And even its cash burn relative to its market cap was very encouraging. One real positive is that analysts are forecasting that the company will reach breakeven. 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. 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 Sichuan Kelun-Biotech Biopharmaceutical 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.

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