Companies Like G3 Global Berhad (KLSE:G3) Are In A Position To Invest In Growth

Just because a business does not make any money, does not mean that the stock will go down. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

So should G3 Global Berhad (KLSE:G3) shareholders 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 G3 Global Berhad

How Long Is G3 Global Berhad's Cash Runway?

A cash runway is defined as the length of time it would take a company to run out of money if it kept spending at its current rate of cash burn. As at June 2022, G3 Global Berhad had cash of RM34m and no debt. Importantly, its cash burn was RM5.5m over the trailing twelve months. Therefore, from June 2022 it had 6.3 years of cash runway. 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 G3 Global Berhad Growing?

At first glance it's a bit worrying to see that G3 Global Berhad actually boosted its cash burn by 25%, year on year. On the other hand, the impressive revenue growth of 361% signals that the increased expenditure may well be yielding results. Sometimes you need to spend money to make money! It seems to be growing nicely. In reality, this article only makes a short study of the company's growth data. You can take a look at how G3 Global Berhad is growing revenue over time by checking this visualization of past revenue growth.

How Easily Can G3 Global Berhad Raise Cash?

There's no doubt G3 Global Berhad seems to be in a fairly good position, when it comes to managing its cash burn, but even if it's only hypothetical, it's always worth asking how easily it could raise more money to fund growth. 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. 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.

Since it has a market capitalisation of RM102m, G3 Global Berhad's RM5.5m in cash burn equates to about 5.4% of its market value. Given that is a rather small percentage, it would probably be really easy for the company to fund another year's growth by issuing some new shares to investors, or even by taking out a loan.

How Risky Is G3 Global Berhad's Cash Burn Situation?

It may already be apparent to you that we're relatively comfortable with the way G3 Global Berhad is burning through its cash. In particular, we think its revenue growth stands out as evidence that the company is well on top of its spending. Although its increasing cash burn does give us reason for pause, the other metrics we discussed in this article form a positive picture overall. After taking into account the various metrics mentioned in this report, we're pretty comfortable with how the company is spending its cash, as it seems on track to meet its needs over the medium term. On another note, G3 Global Berhad has 4 warning signs (and 2 which are significant) we think you should know about.

Of course G3 Global Berhad 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.