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 while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

So should Sunyard TechnologyLtd (SHSE:600571) 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.

View our latest analysis for Sunyard TechnologyLtd

When Might Sunyard TechnologyLtd 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. Sunyard TechnologyLtd has such a small amount of debt that we'll set it aside, and focus on the CN¥569m in cash it held at September 2023. Importantly, its cash burn was CN¥127m over the trailing twelve months. That means it had a cash runway of about 4.5 years as of September 2023. A runway of this length affords the company the time and space it needs to develop the business. Depicted below, you can see how its cash holdings have changed over time.

How Well Is Sunyard TechnologyLtd Growing?

At first glance it's a bit worrying to see that Sunyard TechnologyLtd actually boosted its cash burn by 47%, year on year. In light of that, the flat year on year operating leverage is a bit off-putting. Taken together, we think these growth metrics are a little worrying. In reality, this article only makes a short study of the company's growth data. You can take a look at how Sunyard TechnologyLtd has developed its business over time by checking this visualization of its revenue and earnings history.

Can Sunyard TechnologyLtd Raise More Cash Easily?

Sunyard TechnologyLtd 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. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. 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.

Since it has a market capitalisation of CN¥5.0b, Sunyard TechnologyLtd's CN¥127m in cash burn equates to about 2.6% of its 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.

Is Sunyard TechnologyLtd's Cash Burn A Worry?

As you can probably tell by now, we're not too worried about Sunyard TechnologyLtd'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 its increasing cash burn wasn't great, the other factors mentioned in this article more than make up for weakness on that measure. Based on the factors mentioned in this article, we think its cash burn situation warrants some attention from shareholders, but we don't think they should be worried. Taking an in-depth view of risks, we've identified 1 warning sign for Sunyard TechnologyLtd that you should be aware of before investing.

Of course Sunyard TechnologyLtd 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.