We're Hopeful That Yues International Holdings Group (HKG:1529) Will Use Its Cash Wisely

Just because a business does not make any money, does not mean that the stock will go down. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

So should Yues International Holdings Group (HKG:1529) shareholders 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). First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

Check out our latest analysis for Yues International Holdings Group

When Might Yues International Holdings Group Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Yues International Holdings Group last reported its balance sheet in June 2023, it had zero debt and cash worth CN¥55m. In the last year, its cash burn was CN¥6.8m. Therefore, from June 2023 it had 8.2 years of cash runway. Even though this is but one measure of the company's cash burn, the thought of such a long cash runway warms our bellies in a comforting way. Depicted below, you can see how its cash holdings have changed over time.

Is Yues International Holdings Group's Revenue Growing?

We're hesitant to extrapolate on the recent trend to assess its cash burn, because Yues International Holdings Group actually had positive free cash flow last year, so operating revenue growth is probably our best bet to measure, right now. Regrettably, the company's operating revenue moved in the wrong direction over the last twelve months, declining by 29%. Of course, we've only taken a quick look at the stock's growth metrics, here. You can take a look at how Yues International Holdings Group has developed its business over time by checking this visualization of its revenue and earnings history.

Can Yues International Holdings Group Raise More Cash Easily?

Since its revenue growth is moving in the wrong direction, Yues International Holdings Group shareholders may wish to think ahead to when the company may need to raise more cash. 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.

Yues International Holdings Group has a market capitalisation of CN¥183m and burnt through CN¥6.8m last year, which is 3.7% of the company's market value. That's a low proportion, so we figure the company would be able to raise more cash to fund growth, with a little dilution, or even to simply borrow some money.

Is Yues International Holdings Group's Cash Burn A Worry?

As you can probably tell by now, we're not too worried about Yues International Holdings Group's cash burn. For example, we think its cash runway suggests that the company is on a good path. Although its falling revenue does give us reason for pause, the other metrics we discussed in this article form a positive picture overall. Looking at all the measures in this article, together, we're not worried about its rate of cash burn; the company seems well on top of its medium-term spending needs. On another note, Yues International Holdings Group has 3 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies insiders are buying, 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.