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, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But while the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.

So should CEFC Hong Kong Financial Investment (HKG:1520) 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.

View our latest analysis for CEFC Hong Kong Financial Investment

When Might CEFC Hong Kong Financial Investment Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In December 2019, CEFC Hong Kong Financial Investment had HK$107m in cash, and was debt-free. In the last year, its cash burn was HK$42m. So it had a cash runway of about 2.5 years from December 2019. Arguably, that's a prudent and sensible length of runway to have. You can see how its cash balance has changed over time in the image below.

How Well Is CEFC Hong Kong Financial Investment Growing?

Notably, CEFC Hong Kong Financial Investment actually ramped up its cash burn very hard and fast in the last year, by 179%, signifying heavy investment in the business. As if that's not bad enough, the operating revenue also dropped by 22%, making us very wary indeed. In light of the above-mentioned, we're pretty wary of the trajectory the company seems to be on. Of course, we've only taken a quick look at the stock's growth metrics, here. You can take a look at how CEFC Hong Kong Financial Investment has developed its business over time by checking this visualization of its revenue and earnings history.

Can CEFC Hong Kong Financial Investment Raise More Cash Easily?

CEFC Hong Kong Financial Investment seems to be in a fairly good position, in terms of cash burn, but we still think it's worthwhile considering how easily it could raise more money if it wanted to. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. Commonly, a business will sell new shares in itself to raise cash to 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).