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FutureChemLtd (KOSDAQ:220100) is well positioned to realize growth plans

We can easily understand why investors are attracted to unprofitable companies. For example, biotech and mining exploration companies often lose money for years before achieving success with a new treatment or mineral discovery. But even though the successes are well known, investors should not ignore the many unprofitable companies that simply burn through all their money and collapse.

Given this risk, we thought we’d see if that was the case FutureChemLtd (KOSDAQ:220100) shareholders should be concerned about cash burn. In this article, we define cash burn as annual (negative) free cash flow, the amount of money a company spends annually to finance its growth. Let’s start with an examination of the company’s cash flows, relative to its cash burn.

Check out our latest analysis for FutureChemLtd

Does FutureChemLtd have a long cash runway?

A company’s cash runway is the amount of time it takes to burn through its cash reserves at its current cash burn rate. When FutureChemLtd last reported its March 2024 balance sheet in May 2024, it had zero debt and a cash value of ₩25 billion. Last year, cash burn was ₩7.4 billion. So as of March 2024, it had a cash runway of about 3.3 years. A runway of this length gives the company the time and space it needs to develop the business. Below you can see how cash positions have changed over time.

KOSDAQ:A220100 Debt-equity history June 13, 2024

How well is FutureChemLtd growing?

We believe that the fact that FutureChemLtd was able to reduce its cash burn by 36% over the last year is quite encouraging. Sales also improved over the period, up 11%. On balance, we’d say the business is improving over time. In reality, this article only makes a brief study of the company’s growth data. This graph of historical earnings and revenue shows how FutureChemLtd is building its business over time.

Can FutureChemLtd easily raise more money?

We’re certainly impressed with the progress FutureChemLtd has made over the past year, but it’s also worth considering how expensive it would be if it wanted to raise more money to finance faster growth. Companies can raise capital through debt or equity. Typically, a company will sell new shares on its own to raise money and fuel growth. We can compare a company’s cash burn to its market capitalization to get an idea of ​​how many new shares a company would need to issue to fund a year’s operations.

FutureChemLtd has a market cap of ₩305 billion and burned through ₩7.4 billion last year, which is 2.4% of the company’s market value. So it could almost certainly just borrow a little to fund another year’s growth, or else easily raise the money by issuing a few shares.

Is FutureChemLtd’s cash burn a concern?

It may already be clear to you that we’re relatively comfortable with the way FutureChemLtd is burning its cash. For example, we think the cash runway indicates that the company is on the right track. The weak point is sales growth, but even that wasn’t too bad! After taking into account the various metrics mentioned in this report, we are quite comfortable with how the company is spending its money, as it appears to be on track to meet its needs in the medium term. An in-depth investigation into the risks revealed this 1 warning sign for FutureChemLtd what readers should consider before committing capital to this stock.

Naturally, You might find a fantastic investment by looking elsewhere. So take a look at this free list of interesting companies, and this list of growth stocks (according to analyst forecasts)

Valuation is complex, but we help make it simple.

Find out if FutureChemLtd may be over or undervalued by checking out our comprehensive analysis, including: fair value estimates, risks and cautions, dividends, insider transactions and financial health.

View the Free Analysis

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This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. We aim to provide you with targeted, long-term analysis based on fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or quality material. Simply Wall St has no positions in the stocks mentioned.

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