We Think Ta Jiang (TPE:1453) Can Easily Afford To Drive Business Growth

Just because a business does not make any money, does not mean that the stock will go down. 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. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

So should Ta Jiang (TPE:1453) shareholders be worried about its cash burn? In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. Let's start with an examination of the business' cash, relative to its cash burn.

See our latest analysis for Ta Jiang

When Might Ta Jiang Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at September 2020, Ta Jiang had cash of NT$283m and no debt. In the last year, its cash burn was NT$42m. So it had a cash runway of about 6.7 years from September 2020. 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. You can see how its cash balance has changed over time in the image below.

Can Ta Jiang Raise More Cash Easily?

Companies can raise capital through either debt or equity. 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.

Ta Jiang's cash burn of NT$42m is about 4.8% of its NT$871m market capitalisation. 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.

How Risky Is Ta Jiang's Cash Burn Situation?

Given it's an early stage company, we don't have a lot of data with which to judge Ta Jiang's cash burn. However, it is fair to say that its cash runway gave us comfort. Overall, we think its cash burn seems perfectly reasonable, and we are not concerned by it. Taking a deeper dive, we've spotted 2 warning signs for Ta Jiang you should be aware of, and 1 of them can't be ignored.

Of course Ta Jiang 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. 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.
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