We can readily understand why investors are attracted to unprofitable companies. 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 Everyday NetworkLtd (SZSE:300295) 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. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

When Might Everyday NetworkLtd Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at June 2024, Everyday NetworkLtd had cash of CN¥351m and such minimal debt that we can ignore it for the purposes of this analysis. Importantly, its cash burn was CN¥218m over the trailing twelve months. That means it had a cash runway of around 19 months as of June 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. You can see how its cash balance has changed over time in the image below.

Is Everyday NetworkLtd's Revenue Growing?

We're hesitant to extrapolate on the recent trend to assess its cash burn, because Everyday NetworkLtd actually had positive free cash flow last year, so operating revenue growth is probably our best bet to measure, right now. Unfortunately, the last year has been a disappointment, with operating revenue dropping 8.1% during the period. In reality, this article only makes a short study of the company's growth data. This graph of historic earnings and revenue shows how Everyday NetworkLtd is building its business over time.

Can Everyday NetworkLtd Raise More Cash Easily?

Since its revenue growth is moving in the wrong direction, Everyday NetworkLtd shareholders may wish to think ahead to when the company may need to raise more cash. 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 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.

Since it has a market capitalisation of CN¥2.1b, Everyday NetworkLtd's CN¥218m in cash burn equates to about 11% of its market value. Given that situation, it's fair to say the company wouldn't have much trouble raising more cash for growth, but shareholders would be somewhat diluted.

So, Should We Worry About Everyday NetworkLtd's Cash Burn?

Even though its falling revenue makes us a little nervous, we are compelled to mention that we thought Everyday NetworkLtd's cash burn relative to its market cap was relatively promising. While we're the kind of investors who are always a bit concerned about the risks involved with cash burning companies, the metrics we have discussed in this article leave us relatively comfortable about Everyday NetworkLtd's situation. Readers need to have a sound understanding of business risks before investing in a stock, and we've spotted 2 warning signs for Everyday NetworkLtd 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 interesting companies, 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.