Just because a business does not make any money, does not mean that the stock will go down. 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 the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

So should Zylox-Tonbridge Medical Technology (HKG:2190) shareholders be worried about its cash burn? In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

View our latest analysis for Zylox-Tonbridge Medical Technology

How Long Is Zylox-Tonbridge Medical Technology's Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In December 2021, Zylox-Tonbridge Medical Technology had CN¥2.9b in cash, and was debt-free. Looking at the last year, the company burnt through CN¥206m. So it had a very long cash runway of many years from December 2021. While this is only one measure of its cash burn situation, it certainly gives us the impression that holders have nothing to worry about. Depicted below, you can see how its cash holdings have changed over time.

How Well Is Zylox-Tonbridge Medical Technology Growing?

Zylox-Tonbridge Medical Technology boosted investment sharply in the last year, with cash burn ramping by 61%. But shareholders are no doubt taking some confidence from the rockstar revenue growth of 544% during that same year. On balance, we'd say the company is improving over time. While the past is always worth studying, it is the future that matters most of all. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

How Easily Can Zylox-Tonbridge Medical Technology Raise Cash?

We are certainly impressed with the progress Zylox-Tonbridge Medical Technology has made over the last year, but it is also worth considering how costly it would be if it wanted to raise more cash to fund faster growth. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. 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.

Zylox-Tonbridge Medical Technology's cash burn of CN¥206m is about 5.9% of its CN¥3.5b 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.

So, Should We Worry About Zylox-Tonbridge Medical Technology's Cash Burn?

As you can probably tell by now, we're not too worried about Zylox-Tonbridge Medical Technology's cash burn. For example, we think its revenue growth suggests that the company is on a good path. While its increasing cash burn wasn't great, the other factors mentioned in this article more than make up for weakness on that measure. 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 1 warning sign for Zylox-Tonbridge Medical Technology that potential shareholders should take into account before putting money into a stock.

Of course Zylox-Tonbridge Medical Technology may not be the best stock to buy. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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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.