We Think SKONEC ENTERTAINMENT (KOSDAQ:276040) Can Afford To Drive Business Growth

There's no doubt that money can be made by owning shares of unprofitable businesses. 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. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

So, the natural question for SKONEC ENTERTAINMENT (KOSDAQ:276040) shareholders is whether they should be concerned by its rate of 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.

Check out our latest analysis for SKONEC ENTERTAINMENT

Does SKONEC ENTERTAINMENT 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. As at March 2024, SKONEC ENTERTAINMENT had cash of ₩21b and such minimal debt that we can ignore it for the purposes of this analysis. Importantly, its cash burn was ₩5.1b over the trailing twelve months. Therefore, from March 2024 it had 4.0 years of cash runway. There's no doubt that this is a reassuringly long runway. Depicted below, you can see how its cash holdings have changed over time.

How Well Is SKONEC ENTERTAINMENT Growing?

SKONEC ENTERTAINMENT boosted investment sharply in the last year, with cash burn ramping by 97%. While that isa little concerning at a glance, the company has a track record of recent growth, evidenced by the impressive 53% growth in revenue, over the very same year. On balance, we'd say the company is improving over time. In reality, this article only makes a short study of the company's growth data. You can take a look at how SKONEC ENTERTAINMENT is growing revenue over time by checking this visualization of past revenue growth.

How Hard Would It Be For SKONEC ENTERTAINMENT To Raise More Cash For Growth?

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. 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).

SKONEC ENTERTAINMENT has a market capitalisation of ₩65b and burnt through ₩5.1b last year, which is 7.9% 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.

So, Should We Worry About SKONEC ENTERTAINMENT's Cash Burn?

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 revenue growth suggests that the company is on a good path. Although we do find its increasing cash burn to be a bit of a negative, once we consider the other metrics mentioned in this article together, the overall picture is one we are comfortable with. 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. Readers need to have a sound understanding of business risks before investing in a stock, and we've spotted 2 warning signs for SKONEC ENTERTAINMENT that potential shareholders should take into account before putting money into a stock.

Of course SKONEC ENTERTAINMENT 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.