There's no doubt that money can be made by owning shares of unprofitable businesses. 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 should CITIC Niya Wine (SHSE:600084) shareholders be worried about its 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. Let's start with an examination of the business' cash, relative to its cash burn.

Does CITIC Niya Wine Have A Long Cash Runway?

A company's cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. When CITIC Niya Wine last reported its September 2024 balance sheet in October 2024, it had zero debt and cash worth CN¥67m. Importantly, its cash burn was CN¥40m over the trailing twelve months. Therefore, from September 2024 it had roughly 20 months of cash runway. 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. Depicted below, you can see how its cash holdings have changed over time.

How Well Is CITIC Niya Wine Growing?

Notably, CITIC Niya Wine actually ramped up its cash burn very hard and fast in the last year, by 101%, signifying heavy investment in the business. While that's concerning on it's own, the fact that operating revenue was actually down 15% over the same period makes us positively tremulous. Taken together, we think these growth metrics are a little worrying. Of course, we've only taken a quick look at the stock's growth metrics, here. This graph of historic earnings and revenue shows how CITIC Niya Wine is building its business over time.

How Hard Would It Be For CITIC Niya Wine To Raise More Cash For Growth?

CITIC Niya Wine 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. 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.

CITIC Niya Wine has a market capitalisation of CN¥6.8b and burnt through CN¥40m last year, which is 0.6% of the company's market value. So it could almost certainly just borrow a little to fund another year's growth, or else easily raise the cash by issuing a few shares.

How Risky Is CITIC Niya Wine's Cash Burn Situation?

On this analysis of CITIC Niya Wine's cash burn, we think its cash burn relative to its market cap was reassuring, while its increasing cash burn has us a bit worried. 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 CITIC Niya Wine's situation. Readers need to have a sound understanding of business risks before investing in a stock, and we've spotted 1 warning sign for CITIC Niya Wine 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 with significant insider holdings, 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.