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, the natural question for SinoSun Technology (SZSE:300333) shareholders is whether they should be concerned by its rate of 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.

When Might SinoSun Technology Run Out Of Money?

A cash runway is defined as the length of time it would take a company to run out of money if it kept spending at its current rate of cash burn. When SinoSun Technology last reported its June 2024 balance sheet in August 2024, it had zero debt and cash worth CN¥160m. Looking at the last year, the company burnt through CN¥6.5m. So it had a very long cash runway of many years from June 2024. While this is only one measure of its cash burn situation, it certainly gives us the impression that holders have nothing to worry about. The image below shows how its cash balance has been changing over the last few years.

How Well Is SinoSun Technology Growing?

Happily, SinoSun Technology is travelling in the right direction when it comes to its cash burn, which is down 84% over the last year. However, operating revenue growth was flat over the period. We think it is growing rather well, upon reflection. In reality, this article only makes a short study of the company's growth data. You can take a look at how SinoSun Technology has developed its business over time by checking this visualization of its revenue and earnings history.

Can SinoSun Technology Raise More Cash Easily?

While SinoSun Technology seems to be in a decent position, we reckon it is still worth thinking about how easily it could raise more cash, if that proved desirable. Companies can raise capital through either debt or equity. Many companies end up issuing new shares to fund future 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.

SinoSun Technology has a market capitalisation of CN¥3.1b and burnt through CN¥6.5m last year, which is 0.2% of the company's market value. That means it could easily issue a few shares to fund more growth, and might well be in a position to borrow cheaply.

How Risky Is SinoSun Technology's Cash Burn Situation?

As you can probably tell by now, we're not too worried about SinoSun Technology's cash burn. For example, we think its cash runway suggests that the company is on a good path. On this analysis its revenue growth was its weakest feature, but we are not concerned about it. After considering a range of factors in this article, we're pretty relaxed about its cash burn, since the company seems to be in a good position to continue to fund its growth. Its important for readers to be cognizant of the risks that can affect the company's operations, and we've picked out 2 warning signs for SinoSun Technology that investors should know when investing in the 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)

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.