SKONEC ENTERTAINMENT (KOSDAQ:276040) Is In A Good Position To Deliver On Growth Plans

Just because a business does not make any money, does not mean that the stock will go down. 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 while the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.

Given this risk, we thought we'd take a look at whether SKONEC ENTERTAINMENT (KOSDAQ:276040) shareholders should 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'. Let's start with an examination of the business' cash, relative to its cash burn.

View our latest analysis for SKONEC ENTERTAINMENT

How Long Is SKONEC ENTERTAINMENT's Cash Runway?

A company's cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. SKONEC ENTERTAINMENT has such a small amount of debt that we'll set it aside, and focus on the ₩24b in cash it held at September 2023. In the last year, its cash burn was ₩2.6b. Therefore, from September 2023 it had 9.1 years of cash runway. Even though this is but one measure of the company's cash burn, the thought of such a long cash runway warms our bellies in a comforting way. Depicted below, you can see how its cash holdings have changed over time.

How Well Is SKONEC ENTERTAINMENT Growing?

We reckon the fact that SKONEC ENTERTAINMENT managed to shrink its cash burn by 30% over the last year is rather encouraging. Revenue also improved during the period, increasing by 7.6%. Considering the factors above, the company doesn’t fare badly when it comes to assessing how it is changing over time. In reality, this article only makes a short study of the company's growth data. This graph of historic earnings and revenue shows how SKONEC ENTERTAINMENT is building its business over time.

Can SKONEC ENTERTAINMENT Raise More Cash Easily?

There's no doubt SKONEC ENTERTAINMENT seems to be in a fairly good position, when it comes to managing its cash burn, but even if it's only hypothetical, it's always worth asking how easily it could raise more money to fund growth. 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.

SKONEC ENTERTAINMENT's cash burn of ₩2.6b is about 2.0% of its ₩132b market capitalisation. That means it could easily issue a few shares to fund more growth, and might well be in a position to borrow cheaply.

How Risky Is SKONEC ENTERTAINMENT's Cash Burn Situation?

It may already be apparent to you that we're relatively comfortable with the way SKONEC ENTERTAINMENT is burning through its cash. For example, we think its cash runway suggests that the company is on a good path. On this analysis its revenue growth was its weakest feature, but we are not concerned about it. After taking into account the various metrics mentioned in this report, we're pretty comfortable with how the company is spending its cash, as it seems on track to meet its needs over the medium term. Taking an in-depth view of risks, we've identified 3 warning signs for SKONEC ENTERTAINMENT that you should be aware of before investing.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies insiders are buying, and this list of stocks growth stocks (according to analyst forecasts)

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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.