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 the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

Given this risk, we thought we'd take a look at whether Blivex Energy Technology (SZSE:300116) shareholders should 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'. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

View our latest analysis for Blivex Energy Technology

How Long Is Blivex Energy Technology's Cash Runway?

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 Blivex Energy Technology last reported its balance sheet in September 2023, it had zero debt and cash worth CN¥87m. Importantly, its cash burn was CN¥123m over the trailing twelve months. Therefore, from September 2023 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. The image below shows how its cash balance has been changing over the last few years.

How Well Is Blivex Energy Technology Growing?

One thing for shareholders to keep front in mind is that Blivex Energy Technology increased its cash burn by 1,325% in the last twelve months. While that's concerning on it's own, the fact that operating revenue was actually down 27% over the same period makes us positively tremulous. Considering these two factors together makes us nervous about the direction the company seems to be heading. Of course, we've only taken a quick look at the stock's growth metrics, here. You can take a look at how Blivex Energy Technology has developed its business over time by checking this visualization of its revenue and earnings history.

How Easily Can Blivex Energy Technology Raise Cash?

Given its revenue and free cash flow are both moving in the wrong direction, shareholders may well be wondering how easily Blivex Energy Technology could raise cash. Companies can raise capital through either debt or equity. 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.

Blivex Energy Technology's cash burn of CN¥123m is about 1.9% of its CN¥6.5b market capitalisation. That means it could easily issue a few shares to fund more growth, and might well be in a position to borrow cheaply.

So, Should We Worry About Blivex Energy Technology's Cash Burn?

Even though its increasing cash burn makes us a little nervous, we are compelled to mention that we thought Blivex Energy Technology's cash burn relative to its market cap was relatively promising. Summing up, we think the Blivex Energy Technology's cash burn is a risk, based on the factors we mentioned in this article. Readers need to have a sound understanding of business risks before investing in a stock, and we've spotted 1 warning sign for Blivex Energy Technology that potential shareholders should take into account before putting money into a stock.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies insiders are buying, and this list of stocks growth stocks (according to analyst forecasts)

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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.