Here's Why We're Not Too Worried About Asia Energy Logistics Group's (HKG:351) Cash Burn Situation

There's no doubt that money can be made by owning shares of unprofitable businesses. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

Given this risk, we thought we'd take a look at whether Asia Energy Logistics Group (HKG:351) 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. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

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When Might Asia Energy Logistics Group 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. When Asia Energy Logistics Group last reported its December 2024 balance sheet in April 2025, it had zero debt and cash worth HK$85m. Looking at the last year, the company burnt through HK$8.5m. So it had a cash runway of about 9.9 years from December 2024. While this is only one measure of its cash burn situation, it certainly gives us the impression that holders have nothing to worry about. You can see how its cash balance has changed over time in the image below.

See our latest analysis for Asia Energy Logistics Group

Is Asia Energy Logistics Group's Revenue Growing?

We're hesitant to extrapolate on the recent trend to assess its cash burn, because Asia Energy Logistics Group actually had positive free cash flow last year, so operating revenue growth is probably our best bet to measure, right now. Regrettably, the company's operating revenue moved in the wrong direction over the last twelve months, declining by 49%. In reality, this article only makes a short study of the company's growth data. This graph of historic earnings and revenue shows how Asia Energy Logistics Group is building its business over time.

Can Asia Energy Logistics Group Raise More Cash Easily?

Given its problematic fall in revenue, Asia Energy Logistics Group shareholders should consider how the company could fund its growth, if it turns out it needs more cash. Companies can raise capital through either debt or equity. Commonly, a business will sell new shares in itself to raise cash and drive growth. We can compare a company's cash burn to its market capitalisation to get a sense for how many new shares a company would have to issue to fund one year's operations.

Asia Energy Logistics Group has a market capitalisation of HK$239m and burnt through HK$8.5m last year, which is 3.6% of the company's market value. 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.

How Risky Is Asia Energy Logistics Group's Cash Burn Situation?

It may already be apparent to you that we're relatively comfortable with the way Asia Energy Logistics Group is burning through its cash. For example, we think its cash runway suggests that the company is on a good path. While we must concede that its falling revenue is a bit worrying, the other factors mentioned in this article provide great comfort when it comes to the cash burn. Looking at all the measures in this article, together, we're not worried about its rate of cash burn; the company seems well on top of its medium-term spending needs. Taking a deeper dive, we've spotted 2 warning signs for Asia Energy Logistics Group you should be aware of, and 1 of them can't be ignored.

Of course Asia Energy Logistics Group 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.

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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.