We can readily understand why investors are attracted to unprofitable companies. 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. 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.
Given this risk, we thought we'd take a look at whether Niche Capital Emas Holdings Berhad (KLSE:NICE) shareholders should be worried about its cash burn. For the purpose of this article, we'll define cash burn as the amount of cash the company is spending each year to fund its growth (also called its negative free cash flow). The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.
View our latest analysis for Niche Capital Emas Holdings Berhad
When Might Niche Capital Emas Holdings Berhad Run Out Of Money?
A company's cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. When Niche Capital Emas Holdings Berhad last reported its balance sheet in March 2023, it had zero debt and cash worth RM30m. Importantly, its cash burn was RM11m over the trailing twelve months. So it had a cash runway of about 2.7 years from March 2023. That's decent, giving the company a couple years to develop its business. The image below shows how its cash balance has been changing over the last few years.
How Well Is Niche Capital Emas Holdings Berhad Growing?
It was fairly positive to see that Niche Capital Emas Holdings Berhad reduced its cash burn by 28% during the last year. But the revenue dip of 6.8% in the same period was a bit concerning. On balance, we'd say the company is improving over time. 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 Niche Capital Emas Holdings Berhad is building its business over time.
How Easily Can Niche Capital Emas Holdings Berhad Raise Cash?
Even though it seems like Niche Capital Emas Holdings Berhad is developing its business nicely, we still like to consider how easily it could raise more money to accelerate 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.