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 Jacobio Pharmaceuticals Group (HKG:1167) shareholders be worried about its 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). We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

Check out our latest analysis for Jacobio Pharmaceuticals Group

How Long Is Jacobio Pharmaceuticals Group's Cash Runway?

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 Jacobio Pharmaceuticals Group last reported its balance sheet in December 2021, it had zero debt and cash worth CN¥1.5b. In the last year, its cash burn was CN¥159m. Therefore, from December 2021 it had 9.7 years of cash runway. Even though this is but one measure of the company's cash burn, the thought of such a long cash runway warms our bellies in a comforting way. You can see how its cash balance has changed over time in the image below.

Is Jacobio Pharmaceuticals Group's Revenue Growing?

Given that Jacobio Pharmaceuticals Group actually had positive free cash flow last year, before burning cash this year, we'll focus on its operating revenue to get a measure of the business trajectory. The harsh truth is that operating revenue dropped 69% in the last year, which is quite problematic for a cash burning company. Clearly, however, the crucial factor is whether the company will grow its business going forward. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

How Easily Can Jacobio Pharmaceuticals Group Raise Cash?

Given its problematic fall in revenue, Jacobio Pharmaceuticals Group shareholders should consider how the company could fund its growth, if it turns out it needs 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.

Jacobio Pharmaceuticals Group's cash burn of CN¥159m is about 3.3% of its CN¥4.8b market capitalisation. 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.

Is Jacobio Pharmaceuticals Group's Cash Burn A Worry?

As you can probably tell by now, we're not too worried about Jacobio Pharmaceuticals Group's cash burn. In particular, we think its cash runway stands out as evidence that the company is well on top of its spending. While we must concede that its falling revenue is a bit worrying, the other factors mentioned in this article provide great comfort when it comes to the cash burn. Looking at all the measures in this article, together, we're not worried about its rate of cash burn; the company seems well on top of its medium-term spending needs. On another note, Jacobio Pharmaceuticals Group has 3 warning signs (and 1 which is concerning) we think you should know about.

If you would prefer to check out another company with better fundamentals, then do not miss this free list of interesting companies, that have HIGH return on equity and low debt or this list of stocks which are all forecast to grow.

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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.