Just because a business does not make any money, does not mean that the stock will go down. 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 the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.
So, the natural question for Jiutian Chemical Group (Catalist:C8R) 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. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.
See our latest analysis for Jiutian Chemical Group
Does Jiutian Chemical Group Have A Long Cash Runway?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Jiutian Chemical Group last reported its September 2024 balance sheet in November 2024, it had zero debt and cash worth CN¥522m. In the last year, its cash burn was CN¥340m. That means it had a cash runway of around 18 months as of September 2024. That's not too bad, but it's fair to say the end of the cash runway is in sight, unless cash burn reduces drastically. However, if we extrapolate the company's recent cash burn trend, then it would have a longer cash run way. The image below shows how its cash balance has been changing over the last few years.
How Well Is Jiutian Chemical Group Growing?
Some investors might find it troubling that Jiutian Chemical Group is actually increasing its cash burn, which is up 8.4% in the last year. The fact that operating revenue was down 80% only gives us further disquiet. In light of the above-mentioned, we're pretty wary of the trajectory the company seems to be on. In reality, this article only makes a short study of the company's growth data. You can take a look at how Jiutian Chemical Group has developed its business over time by checking this visualization of its revenue and earnings history.
How Hard Would It Be For Jiutian Chemical Group To Raise More Cash For Growth?
Jiutian Chemical Group revenue is declining and its cash burn is increasing, so many may be considering its need to raise more cash in the future. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. Many companies end up issuing new shares to fund future growth. By looking at a company's cash burn relative to its market capitalisation, we gain insight on how much shareholders would be diluted if the company needed to raise enough cash to cover another year's cash burn.