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. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

So should Tuoxin Pharmaceutical GroupLtd (SZSE:301089) shareholders be worried about its cash burn? For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

Does Tuoxin Pharmaceutical GroupLtd Have A Long Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at March 2025, Tuoxin Pharmaceutical GroupLtd had cash of CN¥281m and no debt. In the last year, its cash burn was CN¥57m. That means it had a cash runway of about 5.0 years as of March 2025. There's no doubt that this is a reassuringly long runway. You can see how its cash balance has changed over time in the image below.

How Well Is Tuoxin Pharmaceutical GroupLtd Growing?

Tuoxin Pharmaceutical GroupLtd managed to reduce its cash burn by 68% over the last twelve months, which suggests it's on the right flight path. And it could also show revenue growth of 5.4% in the same 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 Tuoxin Pharmaceutical GroupLtd has developed its business over time by checking this visualization of its revenue and earnings history.

How Easily Can Tuoxin Pharmaceutical GroupLtd Raise Cash?

There's no doubt Tuoxin Pharmaceutical GroupLtd seems to be in a fairly good position, when it comes to managing its cash burn, but even if it's only hypothetical, it's always worth asking how easily it could raise more money to fund growth. 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. By comparing a company's annual cash burn to its total market capitalisation, we can estimate roughly how many shares it would have to issue in order to run the company for another year (at the same burn rate).

Tuoxin Pharmaceutical GroupLtd's cash burn of CN¥57m is about 1.2% of its CN¥4.8b market capitalisation. 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.

Is Tuoxin Pharmaceutical GroupLtd's Cash Burn A Worry?

It may already be apparent to you that we're relatively comfortable with the way Tuoxin Pharmaceutical GroupLtd is burning through its cash. In particular, we think its cash runway stands out as evidence that the company is well on top of its spending. Its weak point is its revenue growth, but even that wasn't too bad! After taking into account the various metrics mentioned in this report, we're pretty comfortable with how the company is spending its cash, as it seems on track to meet its needs over the medium term. Readers need to have a sound understanding of business risks before investing in a stock, and we've spotted 2 warning signs for Tuoxin Pharmaceutical GroupLtd 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.