Here's Why We're Not Too Worried About Mezzion PharmaLtd's (KOSDAQ:140410) Cash Burn Situation

There's no doubt that money can be made by owning shares of unprofitable businesses. For example, although software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you'd have done very well indeed. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

So should Mezzion PharmaLtd (KOSDAQ:140410) shareholders be worried about its cash burn? For the purpose of this article, we'll define cash burn as the amount of cash the company is spending each year to fund its growth (also called its negative free cash flow). We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

View our latest analysis for Mezzion PharmaLtd

How Long Is Mezzion PharmaLtd's Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In June 2024, Mezzion PharmaLtd had ₩41b in cash, and was debt-free. Importantly, its cash burn was ₩26b over the trailing twelve months. Therefore, from June 2024 it had roughly 19 months of cash runway. While that cash runway isn't too concerning, sensible holders would be peering into the distance, and considering what happens if the company runs out of cash. You can see how its cash balance has changed over time in the image below.

How Well Is Mezzion PharmaLtd Growing?

Some investors might find it troubling that Mezzion PharmaLtd is actually increasing its cash burn, which is up 30% in the last year. Also concerning, operating revenue was actually down by 36% in that time. Considering both these metrics, we're a little concerned about how the company is developing. Of course, we've only taken a quick look at the stock's growth metrics, here. You can take a look at how Mezzion PharmaLtd has developed its business over time by checking this visualization of its revenue and earnings history.

How Easily Can Mezzion PharmaLtd Raise Cash?

Mezzion PharmaLtd 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 looking at a company's cash burn relative to its market capitalisation, we gain insight on how much shareholders would be diluted if the company needed to raise enough cash to cover another year's cash burn.

Mezzion PharmaLtd has a market capitalisation of ₩989b and burnt through ₩26b last year, which is 2.7% of the company's market value. So it could almost certainly just borrow a little to fund another year's growth, or else easily raise the cash by issuing a few shares.

How Risky Is Mezzion PharmaLtd's Cash Burn Situation?

Even though its falling revenue makes us a little nervous, we are compelled to mention that we thought Mezzion PharmaLtd's cash burn relative to its market cap was relatively promising. Cash burning companies are always on the riskier side of things, but after considering all of the factors discussed in this short piece, we're not too worried about its rate of cash burn. Its important for readers to be cognizant of the risks that can affect the company's operations, and we've picked out 1 warning sign for Mezzion PharmaLtd that investors should know when investing in the stock.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies with significant insider holdings, 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.