Here's Why We're Watching Mezzion PharmaLtd's (KOSDAQ:140410) Cash Burn Situation

We can readily understand why investors are attracted to unprofitable companies. 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). The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

See our latest analysis for Mezzion PharmaLtd

How Long Is Mezzion PharmaLtd's 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. As at September 2024, Mezzion PharmaLtd had cash of ₩35b and no debt. In the last year, its cash burn was ₩33b. So it had a cash runway of approximately 13 months from September 2024. That's not too bad, but it's fair to say the end of the cash runway is in sight, unless cash burn reduces drastically. You can see how its cash balance has changed over time in the image below.

How Well Is Mezzion PharmaLtd Growing?

Mezzion PharmaLtd boosted investment sharply in the last year, with cash burn ramping by 57%. And that is all the more of a concern in light of the fact that operating revenue was actually down by 56% in the last year, as the company no doubt scrambles to change its fortunes. In light of the above-mentioned, we're pretty wary of the trajectory the company seems to be on. 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 revenue is declining and its cash burn is increasing, so many may be considering its need to raise more cash in the future. 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.

Mezzion PharmaLtd's cash burn of ₩33b is about 4.0% of its ₩818b market capitalisation. 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 Mezzion PharmaLtd's Cash Burn A Worry?

On this analysis of Mezzion PharmaLtd's cash burn, we think its cash burn relative to its market cap was reassuring, while its falling revenue has us a bit worried. Even though we don't think it has a problem with its cash burn, the analysis we've done in this article does suggest that shareholders should give some careful thought to the potential cost of raising more money in the future. For us, it's always important to consider risks around cash burn rates. But investors should look at a whole range of factors when researching a new stock. For example, it could be interesting to see how much the Mezzion PharmaLtd CEO receives in total remuneration.

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