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. 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 Salutica Berhad (KLSE:SALUTE) shareholders should 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'. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.
View our latest analysis for Salutica Berhad
How Long Is Salutica Berhad's Cash Runway?
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. Salutica Berhad has such a small amount of debt that we'll set it aside, and focus on the RM20m in cash it held at December 2024. Importantly, its cash burn was RM27m over the trailing twelve months. So it had a cash runway of approximately 9 months from December 2024. That's quite a short cash runway, indicating the company must either reduce its annual cash burn or replenish its cash. You can see how its cash balance has changed over time in the image below.
Is Salutica Berhad's Revenue Growing?
We're hesitant to extrapolate on the recent trend to assess its cash burn, because Salutica Berhad actually had positive free cash flow last year, so operating revenue growth is probably our best bet to measure, right now. The harsh truth is that operating revenue dropped 61% in the last year, which is quite problematic for a cash burning company. Of course, we've only taken a quick look at the stock's growth metrics, here. You can take a look at how Salutica Berhad has developed its business over time by checking this visualization of its revenue and earnings history.
How Hard Would It Be For Salutica Berhad To Raise More Cash For Growth?
Since its revenue growth is moving in the wrong direction, Salutica Berhad shareholders may wish to think ahead to when the company may need to raise more cash. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. Many companies end up issuing new shares to fund future growth. By looking at a company's cash burn relative to its market capitalisation, we gain insight on how much shareholders would be diluted if the company needed to raise enough cash to cover another year's cash burn.