We Think Genor Biopharma Holdings (HKG:6998) Needs To Drive Business Growth Carefully

We can readily understand why investors are attracted to unprofitable companies. 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. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

So, the natural question for Genor Biopharma Holdings (HKG:6998) 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 Genor Biopharma Holdings

When Might Genor Biopharma Holdings 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. When Genor Biopharma Holdings last reported its balance sheet in June 2023, it had zero debt and cash worth CN¥1.4b. In the last year, its cash burn was CN¥500m. So it had a cash runway of about 2.7 years from June 2023. Arguably, that's a prudent and sensible length of runway to have. The image below shows how its cash balance has been changing over the last few years.

How Is Genor Biopharma Holdings' Cash Burn Changing Over Time?

Whilst it's great to see that Genor Biopharma Holdings has already begun generating revenue from operations, last year it only produced CN¥13m, so we don't think it is generating significant revenue, at this point. As a result, we think it's a bit early to focus on the revenue growth, so we'll limit ourselves to looking at how the cash burn is changing over time. Even though it doesn't get us excited, the 25% reduction in cash burn year on year does suggest the company can continue operating for quite some time. Of course, we've only taken a quick look at the stock's growth metrics, here. This graph of historic revenue growth shows how Genor Biopharma Holdings is building its business over time.

Can Genor Biopharma Holdings Raise More Cash Easily?

Even though it has reduced its cash burn recently, shareholders should still consider how easy it would be for Genor Biopharma Holdings to raise more cash in the future. 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.

Genor Biopharma Holdings' cash burn of CN¥500m is about 92% of its CN¥544m market capitalisation. That suggests the company may have some funding difficulties, and we'd be very wary of the stock.

So, Should We Worry About Genor Biopharma Holdings' Cash Burn?

On this analysis of Genor Biopharma Holdings' cash burn, we think its cash runway was reassuring, while its cash burn relative to its market cap has us a bit worried. We don't think its cash burn is particularly problematic, but after considering the range of factors in this article, we do think shareholders should be monitoring how it changes over time. Its important for readers to be cognizant of the risks that can affect the company's operations, and we've picked out 2 warning signs for Genor Biopharma Holdings 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.