We Think SKONEC ENTERTAINMENT (KOSDAQ:276040) Can Afford To Drive Business 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, 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 SKONEC ENTERTAINMENT (KOSDAQ:276040) shareholders be worried about its 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. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

Check out our latest analysis for SKONEC ENTERTAINMENT

Does SKONEC ENTERTAINMENT 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. In June 2024, SKONEC ENTERTAINMENT had ₩19b in cash, and was debt-free. Importantly, its cash burn was ₩4.6b over the trailing twelve months. So it had a cash runway of about 4.2 years from June 2024. 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 89%. While operating revenue was up over the same period, the 3.1% gain gives us scant comfort. Taken together, we think these growth metrics are a little worrying. 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.

How Easily Can SKONEC ENTERTAINMENT Raise Cash?

While SKONEC ENTERTAINMENT seems to be in a fairly good position, it's still worth considering how easily it could raise more cash, even just to fuel faster growth. 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. 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 ₩38b, SKONEC ENTERTAINMENT's ₩4.6b in cash burn equates to about 12% of its market value. Given that situation, it's fair to say the company wouldn't have much trouble raising more cash for growth, but shareholders would be somewhat diluted.

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

On this analysis of SKONEC ENTERTAINMENT's cash burn, we think its cash runway was reassuring, while its increasing cash burn has us a bit worried. 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. An in-depth examination of risks revealed 2 warning signs for SKONEC ENTERTAINMENT that readers should think about before committing capital to this 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.