Companies Like Ming Yuan Cloud Group Holdings (HKG:909) Can Afford To Invest In 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. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

Given this risk, we thought we'd take a look at whether Ming Yuan Cloud Group Holdings (HKG:909) shareholders should 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'. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

See our latest analysis for Ming Yuan Cloud Group Holdings

How Long Is Ming Yuan Cloud Group Holdings' Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at December 2021, Ming Yuan Cloud Group Holdings had cash of CN¥5.8b and no debt. Looking at the last year, the company burnt through CN¥164m. That means it had a cash runway of very many years as of December 2021. Notably, however, analysts think that Ming Yuan Cloud Group Holdings 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.

Is Ming Yuan Cloud Group Holdings' Revenue Growing?

We're hesitant to extrapolate on the recent trend to assess its cash burn, because Ming Yuan Cloud Group Holdings actually had positive free cash flow last year, so operating revenue growth is probably our best bet to measure, right now. It's nice to see that operating revenue was up 28% in the last year. While the past is always worth studying, it is the future that matters most of all. So you might want to take a peek at how much the company is expected to grow in the next few years.

How Hard Would It Be For Ming Yuan Cloud Group Holdings To Raise More Cash For Growth?

While Ming Yuan Cloud Group Holdings is showing solid revenue growth, it's still worth considering how easily it could raise more cash, even just to fuel 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. Many companies end up issuing new shares to fund future growth. By comparing a company's annual cash burn to its total market capitalisation, we can estimate roughly how many shares it would have to issue in order to run the company for another year (at the same burn rate).

Since it has a market capitalisation of CN¥17b, Ming Yuan Cloud Group Holdings' CN¥164m in cash burn equates to about 1.0% of its 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.

How Risky Is Ming Yuan Cloud Group Holdings' Cash Burn Situation?

As you can probably tell by now, we're not too worried about Ming Yuan Cloud Group Holdings' cash burn. For example, we think its cash runway suggests that the company is on a good path. And even its revenue growth was very encouraging. It's clearly very positive to see that analysts are forecasting the company will break even fairly soon. Taking all the factors in this report into account, we're not at all worried about its cash burn, as the business appears well capitalized to spend as needs be. An in-depth examination of risks revealed 1 warning sign for Ming Yuan Cloud Group Holdings that readers should think about before committing capital to this stock.

Of course Ming Yuan Cloud Group Holdings 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.