We hope Kuaishou Technology (HKG: 1024) will use their money wisely

Even when a company loses money, it is possible for shareholders to make money if they buy a good company at the right price. For example, although Amazon.com suffered 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 praises these rare successes, those that fail are often forgotten; who remembers Pets.com?

In view of this risk, we thought to examine whether Kuaishou technology (HKG: 1024) shareholders should be concerned about its consumption of cash. In this report, we will consider the company’s annual negative free cash flow, which we now call “cash burn”. First, we will determine its cash trail by comparing its cash consumption with its cash reserves.

Check out our latest review for Kuaishou Technology

Does Kuaishou technology have a long cash flow trail?

A cash flow trail is defined as the time it would take a business to run out of cash if it continued to spend at its current rate of cash consumption. As of September 2021, Kuaishou Technology had CN 48 billion in cash and no debt. Looking at last year, the company burned through CN ¥ 8.6b. This means that he had a cash flow track of around 5.6 years as of September 2021. While this is only a measure of his cash consumption situation, it certainly gives us the impression that holders have nothing to fear. The image below shows how his cash balance has evolved over the past few years.

SEHK: 1024 History of debt to equity December 10, 2021

How well is Kuaishou technology developing?

It was quite astonishing to see that Kuaishou Technology increased its cash consumption by 1470% over the past year. On the positive side, at least operating revenue has increased by 42% over the same period, which gives hope. In light of the above data, we are quite optimistic about the growth trajectory of companies. While the past is always worth studying, it’s the future that matters most. You might want to take a look at how the business is expected to grow over the next few years.

How easily can Kuaishou Technology raise funds?

Kuaishou Technology seems to be in a pretty good position, in terms of money consumption, but we still think it’s worth considering how easily he could raise more money if he wanted to. Generally speaking, a listed company can raise new liquidity by issuing shares or going into debt. Many companies end up issuing new shares to finance their future growth. We can compare a company’s cash consumption to its market capitalization to get an idea of ​​how many new shares a company would need to issue to fund its one-year operations.

Kuaishou Technology has a market cap of CN Â¥ 297b and burned CN Â¥ 8.6b last year, representing 2.9% of the company’s market value. This means that he could easily issue a few stocks to fund more growth and may well be able to borrow more cheaply.

How risky is Kuaishou Technology’s money consuming situation?

As you can probably see by now, we are not too worried about Kuaishou Technology’s silver consumption. In particular, we believe that its cash flow track stands out as proof that the company has good control over its spending. While we find its growing cash consumption to be a bit negative, once we consider the other metrics mentioned in this article together, the overall picture is one we’re comfortable with. Considering all of the factors covered in this article, we are not too concerned about the company’s cash consumption, although we believe shareholders should keep an eye on its development. A thorough examination of the risks revealed 2 warning signs for Kuaishou Technology which readers should think about before committing any capital to this stock.

If you’d rather discover another business with better fundamentals, don’t miss this free list of interesting companies that have HIGH ROE and low debt or this list of stocks that are all expected to grow.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only 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 into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.

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