We Think AUROS Technology (KOSDAQ:322310) Can Easily Afford To Drive Business Growth

We can readily understand why investors are attracted to unprofitable companies. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. 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.

So should AUROS Technology (KOSDAQ:322310) 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 AUROS Technology

When Might AUROS Technology Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at March 2024, AUROS Technology had cash of ₩9.0b and no debt. Looking at the last year, the company burnt through ₩5.8b. Therefore, from March 2024 it had roughly 19 months of cash runway. Importantly, though, analysts think that AUROS Technology will reach cashflow breakeven before then. If that happens, then the length of its cash runway, today, would become a moot point. You can see how its cash balance has changed over time in the image below.

How Well Is AUROS Technology Growing?

We reckon the fact that AUROS Technology managed to shrink its cash burn by 54% over the last year is rather encouraging. And considering that its operating revenue gained 30% during that period, that's great to see. We think it is growing rather well, upon reflection. While the past is always worth studying, it is the future that matters most of all. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

How Easily Can AUROS Technology Raise Cash?

While AUROS Technology 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. 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. 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.

Since it has a market capitalisation of ₩221b, AUROS Technology's ₩5.8b in cash burn equates to about 2.6% of its market value. That means it could easily issue a few shares to fund more growth, and might well be in a position to borrow cheaply.

So, Should We Worry About AUROS Technology's Cash Burn?

As you can probably tell by now, we're not too worried about AUROS Technology's cash burn. For example, we think its cash burn relative to its market cap suggests that the company is on a good path. And even though its cash runway wasn't quite as impressive, it was still a positive. There's no doubt that shareholders can take a lot of heart from the fact that analysts are forecasting it will reach breakeven before too long. After considering a range of factors in this article, we're pretty relaxed about its cash burn, since the company seems to be in a good position to continue to fund its growth. Taking an in-depth view of risks, we've identified 1 warning sign for AUROS Technology that you should be aware of before investing.

If you would prefer to check out another company with better fundamentals, then do not miss this free list of interesting companies, that have HIGH return on equity and low debt or this list of stocks which are all forecast to grow.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com