We're Not Worried About Ming Yuan Cloud Group Holdings' (HKG:909) Cash Burn

We can readily understand why investors are attracted to unprofitable companies. For example, Ming Yuan Cloud Group Holdings (HKG:909) shareholders have done very well over the last year, with the share price soaring by 126%. But while the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.

In light of its strong share price run, we think now is a good time to investigate how risky Ming Yuan Cloud Group Holdings' cash burn is. For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

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When Might Ming Yuan Cloud Group Holdings Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at December 2024, Ming Yuan Cloud Group Holdings had cash of CN¥3.7b and no debt. Looking at the last year, the company burnt through CN¥78m. So it had a very long cash runway of many years from December 2024. 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. You can see how its cash balance has changed over time in the image below.

See our latest analysis for Ming Yuan Cloud Group Holdings

How Well Is Ming Yuan Cloud Group Holdings Growing?

We reckon the fact that Ming Yuan Cloud Group Holdings managed to shrink its cash burn by 47% over the last year is rather encouraging. Unfortunately, however, operating revenue declined by 12% during the period. Considering the factors above, the company doesn’t fare badly when it comes to assessing how it is changing over time. Clearly, however, the crucial factor is whether the company will grow its business going forward. 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?

There's no doubt Ming Yuan Cloud Group Holdings 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. Commonly, a business will sell new shares in itself to raise cash and drive 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.

Since it has a market capitalisation of CN¥7.1b, Ming Yuan Cloud Group Holdings' CN¥78m in cash burn equates to about 1.1% 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. While its falling revenue wasn't great, the other factors mentioned in this article more than make up for weakness on that measure. It's clearly very positive to see that analysts are forecasting the company will break even fairly soon. 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. Notably, our data indicates that Ming Yuan Cloud Group Holdings insiders have been trading the shares. You can discover if they are buyers or sellers by clicking on this link.

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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.