Hangzhou SF Intra-city Industrial (HKG:9699) Is In A Strong Position To Grow Its Business

There's no doubt that money can be made by owning shares of unprofitable businesses. 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. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

So, the natural question for Hangzhou SF Intra-city Industrial (HKG:9699) shareholders is whether they should be concerned by its rate of cash burn. 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. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

See our latest analysis for Hangzhou SF Intra-city Industrial

Does Hangzhou SF Intra-city Industrial Have A Long Cash Runway?

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. As at June 2023, Hangzhou SF Intra-city Industrial had cash of CN¥2.3b and no debt. Looking at the last year, the company burnt through CN¥221m. That means it had a cash runway of very many years as of June 2023. Notably, however, analysts think that Hangzhou SF Intra-city Industrial will break even (at a free cash flow level) before then. In that case, it may never reach the end of its cash runway. Depicted below, you can see how its cash holdings have changed over time.

How Well Is Hangzhou SF Intra-city Industrial Growing?

It was fairly positive to see that Hangzhou SF Intra-city Industrial reduced its cash burn by 52% during the last year. On top of that, operating revenue was up 29%, making for a heartening combination We think it is growing rather well, upon reflection. Clearly, however, the crucial factor is whether the company will grow its business going forward. 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 Hangzhou SF Intra-city Industrial To Raise More Cash For Growth?

We are certainly impressed with the progress Hangzhou SF Intra-city Industrial has made over the last year, but it is also worth considering how costly it would be if it wanted to raise more cash to fund faster 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. 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).

Hangzhou SF Intra-city Industrial's cash burn of CN¥221m is about 2.7% of its CN¥8.1b market capitalisation. That means it could easily issue a few shares to fund more growth, and might well be in a position to borrow cheaply.

So, Should We Worry About Hangzhou SF Intra-city Industrial's Cash Burn?

It may already be apparent to you that we're relatively comfortable with the way Hangzhou SF Intra-city Industrial is burning through its cash. For example, we think its cash runway suggests that the company is on a good path. And even its revenue growth was very encouraging. There's no doubt that shareholders can take a lot of heart from the fact that analysts are forecasting it will reach breakeven before too long. 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. For us, it's always important to consider risks around cash burn rates. But investors should look at a whole range of factors when researching a new stock. For example, it could be interesting to see how much the Hangzhou SF Intra-city Industrial CEO receives in total remuneration.

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.