We Think XIIlabLtd (KOSDAQ:189330) Can Afford To Drive Business Growth

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, the natural question for XIIlabLtd (KOSDAQ:189330) shareholders is whether they should be concerned by its rate of cash burn. In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

See our latest analysis for XIIlabLtd

How Long Is XIIlabLtd's 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. In September 2024, XIIlabLtd had ₩8.0b in cash, and was debt-free. Looking at the last year, the company burnt through ₩6.0b. That means it had a cash runway of around 16 months as of 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. The image below shows how its cash balance has been changing over the last few years.

How Well Is XIIlabLtd Growing?

Some investors might find it troubling that XIIlabLtd is actually increasing its cash burn, which is up 41% in the last year. The good news is that operating revenue increased by 49% in the last year, indicating that the business is gaining some traction. 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 XIIlabLtd is growing revenue over time by checking this visualization of past revenue growth.

How Easily Can XIIlabLtd Raise Cash?

Even though it seems like XIIlabLtd is developing its business nicely, we still like to consider how easily it could raise more money to accelerate 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).

XIIlabLtd's cash burn of ₩6.0b is about 16% of its ₩38b market capitalisation. As a result, we'd venture that the company could raise more cash for growth without much trouble, albeit at the cost of some dilution.

Is XIIlabLtd's Cash Burn A Worry?

On this analysis of XIIlabLtd's cash burn, we think its revenue growth was reassuring, while its increasing cash burn has us a bit worried. While we're the kind of investors who are always a bit concerned about the risks involved with cash burning companies, the metrics we have discussed in this article leave us relatively comfortable about XIIlabLtd's situation. Readers need to have a sound understanding of business risks before investing in a stock, and we've spotted 2 warning signs for XIIlabLtd that potential shareholders should take into account before putting money into a stock.

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.