Companies Like Enertork (KOSDAQ:019990) Are In A Position To Invest In Growth

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 Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

So, the natural question for Enertork (KOSDAQ:019990) shareholders is whether they should be concerned by its rate of cash burn. In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

See our latest analysis for Enertork

Does Enertork Have A Long Cash Runway?

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 Enertork last reported its September 2024 balance sheet in November 2024, it had zero debt and cash worth ₩5.3b. Importantly, its cash burn was ₩2.4b over the trailing twelve months. Therefore, from September 2024 it had 2.3 years of cash runway. That's decent, giving the company a couple years to develop its business. Depicted below, you can see how its cash holdings have changed over time.

Is Enertork's Revenue Growing?

We're hesitant to extrapolate on the recent trend to assess its cash burn, because Enertork 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 8.6%. In reality, this article only makes a short study of the company's growth data. You can take a look at how Enertork has developed its business over time by checking this visualization of its revenue and earnings history.

How Easily Can Enertork Raise Cash?

Given its problematic fall in revenue, Enertork shareholders should consider how the company could fund its growth, if it turns out it needs more cash. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. 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.

Enertork has a market capitalisation of ₩48b and burnt through ₩2.4b last year, which is 4.9% of the company's market value. Given that is a rather small percentage, it would probably be really easy for the company to fund another year's growth by issuing some new shares to investors, or even by taking out a loan.

Is Enertork's Cash Burn A Worry?

It may already be apparent to you that we're relatively comfortable with the way Enertork is burning through its cash. For example, we think its cash burn relative to its market cap suggests that the company is on a good path. While its falling revenue wasn't great, the other factors mentioned in this article more than make up for weakness on that measure. Considering all the factors discussed in this article, we're not overly concerned about the company's cash burn, although we do think shareholders should keep an eye on how it develops. On another note, we conducted an in-depth investigation of the company, and identified 4 warning signs for Enertork (1 is a bit unpleasant!) that you should be aware of before investing here.

If you would prefer to check out another company with better fundamentals, then do not miss this free list of interesting companies, that have HIGH return on equity and low debt or this list of stocks which are all forecast to grow.

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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.