Is Hold Jinn ElectronicsLtd (GTSM:3191) In A Good Position To Invest In Growth?

Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. 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 Hold Jinn ElectronicsLtd (GTSM:3191) shareholders is whether they should be concerned by its rate of 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. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

Check out our latest analysis for Hold Jinn ElectronicsLtd

When Might Hold Jinn ElectronicsLtd Run Out Of Money?

A company's cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. When Hold Jinn ElectronicsLtd last reported its balance sheet in September 2020, it had zero debt and cash worth NT$73m. In the last year, its cash burn was NT$110m. Therefore, from September 2020 it had roughly 8 months of cash runway. To be frank, this kind of short runway puts us on edge, as it indicates the company must reduce its cash burn significantly, or else raise cash imminently. You can see how its cash balance has changed over time in the image below.

How Well Is Hold Jinn ElectronicsLtd Growing?

Happily, Hold Jinn ElectronicsLtd is travelling in the right direction when it comes to its cash burn, which is down 68% over the last year. Unfortunately, however, operating revenue dropped 35% during the same time frame. Considering the factors above, the company doesn’t fare badly when it comes to assessing how it is changing over time. Of course, we've only taken a quick look at the stock's growth metrics, here. You can take a look at how Hold Jinn ElectronicsLtd has developed its business over time by checking this visualization of its revenue and earnings history.

Can Hold Jinn ElectronicsLtd Raise More Cash Easily?

Given Hold Jinn ElectronicsLtd's revenue is receding, there's a considerable chance it will eventually need to raise more money to spend on driving growth. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund 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 NT$603m, Hold Jinn ElectronicsLtd's NT$110m in cash burn equates to about 18% of its market value. As a result, we'd venture that the company could raise more cash for growth without much trouble, albeit at the cost of some dilution.

Is Hold Jinn ElectronicsLtd's Cash Burn A Worry?

On this analysis of Hold Jinn ElectronicsLtd's cash burn, we think its cash burn reduction was reassuring, while its cash runway has us a bit worried. Summing up, we think the Hold Jinn ElectronicsLtd's cash burn is a risk, based on the factors we mentioned in this article. On another note, we conducted an in-depth investigation of the company, and identified 2 warning signs for Hold Jinn ElectronicsLtd (1 can't be ignored!) that you should be aware of before investing here.

Of course Hold Jinn ElectronicsLtd 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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