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.

So should MOGU (NYSE:MOGU) 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'. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

Check out our latest analysis for MOGU

How Long Is MOGU's Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at September 2023, MOGU had cash of CN￥470m and no debt. In the last year, its cash burn was CN￥83m. That means it had a cash runway of about 5.7 years as of September 2023. While this is only one measure of its cash burn situation, it certainly gives us the impression that holders have nothing to worry about. Depicted below, you can see how its cash holdings have changed over time.

How Well Is MOGU Growing?

It was fairly positive to see that MOGU reduced its cash burn by 26% during the last year. Unfortunately, however, operating revenue declined by 28% during the period. In light of the data above, we're fairly sanguine about the business growth trajectory. Of course, we've only taken a quick look at the stock's growth metrics, here. You can take a look at how MOGU has developed its business over time by checking this visualization of its revenue and earnings history.

How Easily Can MOGU Raise Cash?

MOGU 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. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. Many companies end up issuing new shares to fund future growth. By comparing a company's annual cash burn to its total market capitalisation, we can estimate roughly how many shares it would have to issue in order to run the company for another year (at the same burn rate).

Since it has a market capitalisation of CN￥145m, MOGU's CN￥83m in cash burn equates to about 57% of its market value. From this perspective, it seems that the company spent a huge amount relative to its market value, and we'd be very wary of a painful capital raising.