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 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 Jiangsu CoWin Biotech (SHSE:688426) shareholders be worried about its cash burn? In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

When Might Jiangsu CoWin Biotech Run Out Of Money?

You can calculate a company's cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. When Jiangsu CoWin Biotech last reported its September 2024 balance sheet in October 2024, it had zero debt and cash worth CN¥653m. Looking at the last year, the company burnt through CN¥142m. That means it had a cash runway of about 4.6 years as of September 2024. A runway of this length affords the company the time and space it needs to develop the business. The image below shows how its cash balance has been changing over the last few years.

How Well Is Jiangsu CoWin Biotech Growing?

It was fairly positive to see that Jiangsu CoWin Biotech reduced its cash burn by 34% during the last year. But it makes us pessimistic to see that operating revenue slid 57% in that time. Taken together, we think these growth metrics are a little worrying. In reality, this article only makes a short study of the company's growth data. You can take a look at how Jiangsu CoWin Biotech has developed its business over time by checking this visualization of its revenue and earnings history.

How Hard Would It Be For Jiangsu CoWin Biotech To Raise More Cash For Growth?

Jiangsu CoWin Biotech 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. Companies can raise capital through either debt or equity. Commonly, a business will sell new shares in itself to raise cash and drive 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.

Jiangsu CoWin Biotech has a market capitalisation of CN¥2.4b and burnt through CN¥142m last year, which is 5.8% of the company's market value. Given that is a rather small percentage, it would probably be really easy for the company to fund another year's growth by issuing some new shares to investors, or even by taking out a loan.

So, Should We Worry About Jiangsu CoWin Biotech's Cash Burn?

It may already be apparent to you that we're relatively comfortable with the way Jiangsu CoWin Biotech is burning through its cash. In particular, we think its cash runway stands out as evidence that the company is well on top of its spending. Although we do find its falling revenue to be a bit of a negative, once we consider the other metrics mentioned in this article together, the overall picture is one we are comfortable with. Considering all the factors discussed in this article, we're not overly concerned about the company's cash burn, although we do think shareholders should keep an eye on how it develops. Readers need to have a sound understanding of business risks before investing in a stock, and we've spotted 1 warning sign for Jiangsu CoWin Biotech that potential shareholders should take into account before putting money into a stock.

Of course Jiangsu CoWin Biotech 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 with high insider ownership.

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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.