Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

Given this risk, we thought we'd take a look at whether Jianzhi Education Technology Group (NASDAQ:JZ) shareholders should 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. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

See our latest analysis for Jianzhi Education Technology Group

When Might Jianzhi Education Technology Group Run Out Of Money?

You can calculate a company's cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. When Jianzhi Education Technology Group last reported its June 2024 balance sheet in September 2024, it had zero debt and cash worth CN¥21m. Importantly, its cash burn was CN¥15m over the trailing twelve months. So it had a cash runway of approximately 16 months from June 2024. That's not too bad, but it's fair to say the end of the cash runway is in sight, unless cash burn reduces drastically. Depicted below, you can see how its cash holdings have changed over time.

How Well Is Jianzhi Education Technology Group Growing?

Jianzhi Education Technology Group managed to reduce its cash burn by 82% over the last twelve months, which suggests it's on the right flight path. Unfortunately, however, operating revenue dropped 30% during the same time frame. Considering the factors above, the company doesn’t fare badly when it comes to assessing how it is changing over time. In reality, this article only makes a short study of the company's growth data. You can take a look at how Jianzhi Education Technology Group has developed its business over time by checking this visualization of its revenue and earnings history.

Can Jianzhi Education Technology Group Raise More Cash Easily?

Even though it seems like Jianzhi Education Technology Group is developing its business nicely, we still like to consider how easily it could raise more money to accelerate growth. 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.

Jianzhi Education Technology Group's cash burn of CN¥15m is about 9.7% of its CN¥157m market capitalisation. That's a low proportion, so we figure the company would be able to raise more cash to fund growth, with a little dilution, or even to simply borrow some money.

Is Jianzhi Education Technology Group's Cash Burn A Worry?

On this analysis of Jianzhi Education Technology Group's cash burn, we think its cash burn reduction was reassuring, while its falling revenue has us a bit worried. While we're the kind of investors who are always a bit concerned about the risks involved with cash burning companies, the metrics we have discussed in this article leave us relatively comfortable about Jianzhi Education Technology Group's situation. On another note, we conducted an in-depth investigation of the company, and identified 4 warning signs for Jianzhi Education Technology Group (3 shouldn't be ignored!) that you should be aware of before investing here.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies, 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.