We're Not Very Worried About Shanghai Bio-heart Biological Technology's (HKG:2185) Cash Burn Rate
We can readily understand why investors are attracted to unprofitable companies. 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.
So should Shanghai Bio-heart Biological Technology (HKG:2185) 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'.
How Long Is Shanghai Bio-heart Biological Technology's Cash Runway?
A company's cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. As at June 2026, Shanghai Bio-heart Biological Technology had cash of CN¥238m and no debt. Looking at the last year, the company burnt through CN¥81m. Therefore, from June 2026 it had 2.9 years of cash runway. That's decent, giving the company a couple years to develop its business. You can see how its cash balance has changed over time in the image below.
View our latest analysis for Shanghai Bio-heart Biological Technology
How Well Is Shanghai Bio-heart Biological Technology Growing?
At first glance it's a bit worrying to see that Shanghai Bio-heart Biological Technology actually boosted its cash burn by 4.6%, year on year. But looking on the bright side, its revenue gained by 84%, lending some credence to the growth narrative. The company needs to keep up that growth, if it is to really please shareholders. We think it is growing rather well, upon reflection. Of course, we've only taken a quick look at the stock's growth metrics, here. This graph of historic revenue growth shows how Shanghai Bio-heart Biological Technology is building its business over time.
How Easily Can Shanghai Bio-heart Biological Technology Raise Cash?
We are certainly impressed with the progress Shanghai Bio-heart Biological 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. Companies can raise capital through either debt or equity. 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.
Shanghai Bio-heart Biological Technology has a market capitalisation of CN¥230m and burnt through CN¥81m last year, which is 35% of the company's market value. That's not insignificant, and if the company had to sell enough shares to fund another year's growth at the current share price, you'd likely witness fairly costly dilution.
Is Shanghai Bio-heart Biological Technology's Cash Burn A Worry?
On this analysis of Shanghai Bio-heart Biological Technology's cash burn, we think its revenue growth was reassuring, while its cash burn relative to its market cap has us a bit worried. Cash burning companies are always on the riskier side of things, but after considering all of the factors discussed in this short piece, we're not too worried about its rate of cash burn. An in-depth examination of risks revealed 2 warning signs for Shanghai Bio-heart Biological Technology that readers should think about before committing capital to this stock.
Of course Shanghai Bio-heart Biological 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 with high insider ownership.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.