Here's Why We're Not Too Worried About Northeast Electric Development's (HKG:42) Cash Burn Situation

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, although software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you'd have done very well indeed. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

So should Northeast Electric Development (HKG:42) shareholders be worried about its 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). First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

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Does Northeast Electric Development Have A Long Cash Runway?

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 Northeast Electric Development last reported its June 2025 balance sheet in September 2025, it had zero debt and cash worth CN¥13m. In the last year, its cash burn was CN¥7.2m. That means it had a cash runway of around 22 months as of June 2025. 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. You can see how its cash balance has changed over time in the image below.

See our latest analysis for Northeast Electric Development

How Well Is Northeast Electric Development Growing?

It was fairly positive to see that Northeast Electric Development reduced its cash burn by 38% during the last year. Revenue also improved during the period, increasing by 19%. It seems to be growing nicely. 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 Northeast Electric Development is building its business over time.

Can Northeast Electric Development Raise More Cash Easily?

Northeast Electric Development seems to be in a fairly good position, in terms of cash burn, but we still think it's worthwhile considering how easily it could raise more money if it wanted to. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund 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.

Northeast Electric Development's cash burn of CN¥7.2m is about 3.0% of its CN¥244m market capitalisation. So it could almost certainly just borrow a little to fund another year's growth, or else easily raise the cash by issuing a few shares.

How Risky Is Northeast Electric Development's Cash Burn Situation?

As you can probably tell by now, we're not too worried about Northeast Electric Development's cash burn. For example, we think its cash burn relative to its market cap suggests that the company is on a good path. Its revenue growth wasn't quite as good, but was still rather encouraging! 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. Taking a deeper dive, we've spotted 4 warning signs for Northeast Electric Development you should be aware of, and 2 of them are potentially serious.

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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.