Just because a business does not make any money, does not mean that the stock will go down. 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. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.
Given this risk, we thought we'd take a look at whether Alset International (Catalist:40V) 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'. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.
Check out our latest analysis for Alset International
When Might Alset International Run Out Of Money?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. In June 2022, Alset International had S$46m in cash, and was debt-free. In the last year, its cash burn was S$10m. That means it had a cash runway of about 4.4 years as of June 2022. There's no doubt that this is a reassuringly long runway. The image below shows how its cash balance has been changing over the last few years.
How Well Is Alset International Growing?
Notably, Alset International actually ramped up its cash burn very hard and fast in the last year, by 131%, signifying heavy investment in the business. And that is all the more of a concern in light of the fact that operating revenue was actually down by 59% in the last year, as the company no doubt scrambles to change its fortunes. Considering these two factors together makes us nervous about the direction the company seems to be heading. In reality, this article only makes a short study of the company's growth data. You can take a look at how Alset International has developed its business over time by checking this visualization of its revenue and earnings history.
How Hard Would It Be For Alset International To Raise More Cash For Growth?
Even though it seems like Alset International is developing its business nicely, we still like to consider how easily it could raise more money to accelerate 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).