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 the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.

So, the natural question for Bright Scholar Education Holdings (NYSE:BEDU) shareholders is whether they should be concerned by its rate of 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). The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

See our latest analysis for Bright Scholar Education Holdings

Does Bright Scholar Education Holdings Have A Long Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at February 2024, Bright Scholar Education Holdings had cash of CN¥505m and no debt. Importantly, its cash burn was CN¥154m over the trailing twelve months. That means it had a cash runway of about 3.3 years as of February 2024. A runway of this length affords the company the time and space it needs to develop the business. You can see how its cash balance has changed over time in the image below.

Is Bright Scholar Education Holdings' Revenue Growing?

We're hesitant to extrapolate on the recent trend to assess its cash burn, because Bright Scholar Education Holdings actually had positive free cash flow last year, so operating revenue growth is probably our best bet to measure, right now. It's nice to see that operating revenue was up 23% in the last year. 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 Bright Scholar Education Holdings is building its business over time.

Can Bright Scholar Education Holdings Raise More Cash Easily?

While Bright Scholar Education Holdings is showing solid revenue growth, it's still worth considering how easily it could raise more cash, even just to fuel 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. 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 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.

Bright Scholar Education Holdings' cash burn of CN¥154m is about 37% of its CN¥417m market capitalisation. That's fairly notable cash burn, so if the company had to sell shares to cover the cost of another year's operations, shareholders would suffer some costly dilution.

So, Should We Worry About Bright Scholar Education Holdings' Cash Burn?

On this analysis of Bright Scholar Education Holdings' cash burn, we think its cash runway was reassuring, while its cash burn relative to its market cap has us a bit worried. 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. Separately, we looked at different risks affecting the company and spotted 3 warning signs for Bright Scholar Education Holdings (of which 1 doesn't sit too well with us!) 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.