We're Interested To See How Advanced Optoelectronic Technology (TWSE:3437) Uses Its Cash Hoard To Grow

We can readily understand why investors are attracted to unprofitable companies. 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 should Advanced Optoelectronic Technology (TWSE:3437) 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.

View our latest analysis for Advanced Optoelectronic Technology

Does Advanced Optoelectronic Technology Have A Long Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Advanced Optoelectronic Technology last reported its September 2024 balance sheet in November 2024, it had zero debt and cash worth NT$1.3b. Looking at the last year, the company burnt through NT$60m. So it had a very long cash runway of many years from September 2024. While this is only one measure of its cash burn situation, it certainly gives us the impression that holders have nothing to worry about. You can see how its cash balance has changed over time in the image below.

How Well Is Advanced Optoelectronic Technology Growing?

Happily, Advanced Optoelectronic Technology is travelling in the right direction when it comes to its cash burn, which is down 67% over the last year. And it could also show revenue growth of 7.6% in the same period. It seems to be growing nicely. Of course, we've only taken a quick look at the stock's growth metrics, here. This graph of historic earnings and revenue shows how Advanced Optoelectronic Technology is building its business over time.

How Hard Would It Be For Advanced Optoelectronic Technology To Raise More Cash For Growth?

While Advanced Optoelectronic Technology seems to be in a decent position, we reckon it is still worth thinking about how easily it could raise more cash, if that proved desirable. 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).

Advanced Optoelectronic Technology has a market capitalisation of NT$3.6b and burnt through NT$60m last year, which is 1.7% of the company's market value. So it could almost certainly just borrow a little to fund another year's growth, or else easily raise the cash by issuing a few shares.

How Risky Is Advanced Optoelectronic Technology's Cash Burn Situation?

It may already be apparent to you that we're relatively comfortable with the way Advanced Optoelectronic Technology is burning through its cash. For example, we think its cash runway suggests that the company is on a good path. On this analysis its revenue growth was its weakest feature, but we are not concerned about it. 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. 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 Advanced Optoelectronic Technology CEO receives in total remuneration.

If you would prefer to check out another company with better fundamentals, then do not miss this free list of interesting companies, that have HIGH return on equity and low debt or this list of stocks which are all forecast to grow.

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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.