SyneuRx International (Taiwan) (GTSM:6575) Is In A Good Position To Deliver On Growth Plans

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, 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. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

Given this risk, we thought we'd take a look at whether SyneuRx International (Taiwan) (GTSM:6575) shareholders should 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. Let's start with an examination of the business' cash, relative to its cash burn.

View our latest analysis for SyneuRx International (Taiwan)

How Long Is SyneuRx International (Taiwan)'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. As at December 2020, SyneuRx International (Taiwan) had cash of NT$241m and no debt. In the last year, its cash burn was NT$199m. So it had a cash runway of approximately 15 months from December 2020. 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 Is SyneuRx International (Taiwan)'s Cash Burn Changing Over Time?

SyneuRx International (Taiwan) didn't record any revenue over the last year, indicating that it's an early stage company still developing its business. Nonetheless, we can still examine its cash burn trajectory as part of our assessment of its cash burn situation. Over the last year its cash burn actually increased by 9.6%, which suggests that management are increasing investment in future growth, but not too quickly. However, the company's true cash runway will therefore be shorter than suggested above, if spending continues to increase. SyneuRx International (Taiwan) makes us a little nervous due to its lack of substantial operating revenue. We prefer most of the stocks on this list of stocks that analysts expect to grow.

Can SyneuRx International (Taiwan) Raise More Cash Easily?

Since its cash burn is increasing (albeit only slightly), SyneuRx International (Taiwan) shareholders should still be mindful of the possibility it will require 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. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund 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.

SyneuRx International (Taiwan)'s cash burn of NT$199m is about 3.9% of its NT$5.1b 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.

How Risky Is SyneuRx International (Taiwan)'s Cash Burn Situation?

Even though its increasing cash burn makes us a little nervous, we are compelled to mention that we thought SyneuRx International (Taiwan)'s cash burn relative to its market cap was relatively promising. 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 SyneuRx International (Taiwan)'s situation. An in-depth examination of risks revealed 1 warning sign for SyneuRx International (Taiwan) that readers should think about before committing capital to this 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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