We're Hopeful That Al Khaleej Investment P.J.S.C (ADX:KICO) Will Use Its Cash Wisely

We can readily understand why investors are attracted to unprofitable companies. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

So should Al Khaleej Investment P.J.S.C (ADX:KICO) 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'.

Check out our latest analysis for Al Khaleej Investment P.J.S.C

How Long Is Al Khaleej Investment P.J.S.C'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. When Al Khaleej Investment P.J.S.C last reported its balance sheet in March 2021, it had zero debt and cash worth د.إ62m. Looking at the last year, the company burnt through د.إ18m. That means it had a cash runway of about 3.5 years as of March 2021. There's no doubt that this is a reassuringly long runway. Depicted below, you can see how its cash holdings have changed over time.

Is Al Khaleej Investment P.J.S.C's Revenue Growing?

We're hesitant to extrapolate on the recent trend to assess its cash burn, because Al Khaleej Investment P.J.S.C actually had positive free cash flow last year, so operating revenue growth is probably our best bet to measure, right now. Regrettably, the company's operating revenue moved in the wrong direction over the last twelve months, declining by 18%. In reality, this article only makes a short study of the company's growth data. You can take a look at how Al Khaleej Investment P.J.S.C has developed its business over time by checking this visualization of its revenue and earnings history.

Can Al Khaleej Investment P.J.S.C Raise More Cash Easily?

Since its revenue growth is moving in the wrong direction, Al Khaleej Investment P.J.S.C shareholders may wish to think ahead to when the company may need to raise more cash. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. 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.

Al Khaleej Investment P.J.S.C's cash burn of د.إ18m is about 14% of its د.إ126m market capitalisation. Given that situation, it's fair to say the company wouldn't have much trouble raising more cash for growth, but shareholders would be somewhat diluted.

Is Al Khaleej Investment P.J.S.C's Cash Burn A Worry?

As you can probably tell by now, we're not too worried about Al Khaleej Investment P.J.S.C's cash burn. In particular, we think its cash runway stands out as evidence that the company is well on top of its spending. While its falling revenue wasn't great, the other factors mentioned in this article more than make up for weakness on that measure. Considering all the factors discussed in this article, we're not overly concerned about the company's cash burn, although we do think shareholders should keep an eye on how it develops. Taking a deeper dive, we've spotted 2 warning signs for Al Khaleej Investment P.J.S.C you should be aware of, and 1 of them is significant.

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

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