Here's Why We're Not Too Worried About Asiasec Properties' (HKG:271) Cash Burn Situation

We can readily understand why investors are attracted to unprofitable companies. For example, although Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

Given this risk, we thought we'd take a look at whether Asiasec Properties (HKG:271) 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'.

See our latest analysis for Asiasec Properties

How Long Is Asiasec Properties' Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In December 2021, Asiasec Properties had HK$163m in cash, and was debt-free. Importantly, its cash burn was HK$11m over the trailing twelve months. So it had a very long cash runway of many years from December 2021. While this is only one measure of its cash burn situation, it certainly gives us the impression that holders have nothing to worry about. Depicted below, you can see how its cash holdings have changed over time.

How Well Is Asiasec Properties Growing?

In the last twelve months, Asiasec Properties kept its cash burn steady. But we regret to inform that the revenue slid 26%, and that's not what we want to see. Considering both these metrics, we're a little concerned about how the company is developing. In reality, this article only makes a short study of the company's growth data. You can take a look at how Asiasec Properties has developed its business over time by checking this visualization of its revenue and earnings history.

How Easily Can Asiasec Properties Raise Cash?

Even though it seems like Asiasec Properties 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. 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.

Asiasec Properties' cash burn of HK$11m is about 2.2% of its HK$515m market capitalisation. So it could almost certainly just borrow a little to fund another year's growth, or else easily raise the cash by issuing a few shares.

Is Asiasec Properties' Cash Burn A Worry?

As you can probably tell by now, we're not too worried about Asiasec Properties' cash burn. For example, we think its cash runway suggests that the company is on a good path. Although its falling revenue does give us reason for pause, the other metrics we discussed in this article form a positive picture overall. 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. On another note, Asiasec Properties has 3 warning signs (and 1 which can't be ignored) we think you should know about.

Of course Asiasec Properties may not be the best stock to buy. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.