We Think Feei Cherng Enterprise (GTSM:3313) Can Afford To Drive Business Growth

There's no doubt that money can be made by owning shares of unprofitable businesses. 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 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 Feei Cherng Enterprise (GTSM:3313) shareholders be worried about its cash burn? In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

View 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. Feei Cherng Enterprise has such a small amount of debt that we'll set it aside, and focus on the NT$659m in cash it held at September 2020. In the last year, its cash burn was NT$83m. So it had a cash runway of about 7.9 years from September 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?

Some investors might find it troubling that Feei Cherng Enterprise is actually increasing its cash burn, which is up 26% in the last year. Also concerning, operating revenue was actually down by 27% in that time. Considering both these metrics, we're a little concerned about how the company is developing. In reality, this article only makes a short study of the company's growth data. You can take a look at how Feei Cherng Enterprise has developed its business over time by checking this visualization of its revenue and earnings history.

Can Feei Cherng Enterprise Raise More Cash Easily?

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. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. 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.

Feei Cherng Enterprise has a market capitalisation of NT$1.2b and burnt through NT$83m last year, which is 6.9% of the company's market value. 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.

Is Feei Cherng Enterprise's Cash Burn A Worry?

On this analysis of Feei Cherng Enterprise's cash burn, we think its cash runway was reassuring, while its falling revenue has us a bit worried. Based on the factors mentioned in this article, we think its cash burn situation warrants some attention from shareholders, but we don't think they should be worried. Readers need to have a sound understanding of business risks before investing in a stock, and we've spotted 2 warning signs for Feei Cherng Enterprise that potential shareholders should take into account before putting money into a stock.

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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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