Feei Cherng Enterprise (GTSM:3313) 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 Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

Given this risk, we thought we'd take a look at whether Feei Cherng Enterprise (GTSM:3313) shareholders should be worried about its 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. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

See our latest analysis for Feei Cherng Enterprise

How Long Is Feei Cherng Enterprise's Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at December 2020, Feei Cherng Enterprise had cash of NT$658m and such minimal debt that we can ignore it for the purposes of this analysis. In the last year, its cash burn was NT$68m. So it had a cash runway of about 9.7 years from December 2020. While this is only one measure of its cash burn situation, it certainly gives us the impression that holders have nothing to worry about. Depicted below, you can see how its cash holdings have changed over time.

How Well Is Feei Cherng Enterprise Growing?

At first glance it's a bit worrying to see that Feei Cherng Enterprise actually boosted its cash burn by 10%, year on year. It's even more troubling to see that operating revenue fell 72% during the period. Considering these two factors together makes us nervous about the direction the company seems to be heading. Of course, we've only taken a quick look at the stock's growth metrics, here. This graph of historic earnings and revenue shows how Feei Cherng Enterprise is building its business over time.

How Easily Can Feei Cherng Enterprise Raise Cash?

While Feei Cherng Enterprise 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. Companies can raise capital through either debt or equity. Commonly, a business will sell new shares in itself to raise cash and drive 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).

Feei Cherng Enterprise's cash burn of NT$68m is about 5.4% of its NT$1.2b market capitalisation. That's a low proportion, so we figure the company would be able to raise more cash to fund growth, with a little dilution, or even to simply borrow some money.

How Risky Is Feei Cherng Enterprise's Cash Burn Situation?

Even though its falling revenue makes us a little nervous, we are compelled to mention that we thought Feei Cherng Enterprise's cash runway was relatively promising. Considering all the factors discussed in this article, we're not overly concerned about the company's cash burn, although we do think shareholders should keep an eye on how it develops. Readers need to have a sound understanding of business risks before investing in a stock, and we've spotted 3 warning signs for Feei Cherng Enterprise that potential shareholders should take into account before putting money into a stock.

Of course Feei Cherng Enterprise may not be the best stock to buy. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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This article by Simply Wall St is general in nature. 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.
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