We're Not Very Worried About G3 Global Berhad's (KLSE:G3) Cash Burn Rate

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. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

So, the natural question for G3 Global Berhad (KLSE:G3) shareholders is whether they should be concerned by its rate of 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 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. In December 2021, G3 Global Berhad had RM9.4m in cash, and was debt-free. Looking at the last year, the company burnt through RM3.7m. That means it had a cash runway of about 2.5 years as of December 2021. That's decent, giving the company a couple years to develop its business. The image below shows how its cash balance has been changing over the last few years.

How Well Is G3 Global Berhad Growing?

G3 Global Berhad reduced its cash burn by 14% during the last year, which points to some degree of discipline. And arguably the operating revenue growth of 57% was even more impressive. 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?

While G3 Global Berhad seems to be in a decent position, we reckon it is still worth thinking about how easily it could raise more cash, if that proved desirable. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund 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).

Since it has a market capitalisation of RM184m, G3 Global Berhad's RM3.7m in cash burn equates to about 2.0% of its market value. That means it could easily issue a few shares to fund more growth, and might well be in a position to borrow cheaply.

So, Should We Worry About G3 Global Berhad's Cash Burn?

It may already be apparent to you that we're relatively comfortable with the way G3 Global Berhad is burning through its cash. For example, we think its revenue growth suggests that the company is on a good path. On this analysis its cash burn reduction was its weakest feature, but we are not concerned about it. Looking at all the measures in this article, together, we're not worried about its rate of cash burn, which seems to be under control. Taking a deeper dive, we've spotted 3 warning signs for G3 Global Berhad you should be aware of, and 1 of them is significant.

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.