Companies Like Niche Capital Emas Holdings Berhad (KLSE:NICE) Are In A Position To Invest In Growth

Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. 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 Niche Capital Emas Holdings Berhad (KLSE:NICE) shareholders should be worried about its cash burn. For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. 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 Niche Capital Emas Holdings Berhad

Does Niche Capital Emas Holdings Berhad Have A Long 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. As at March 2023, Niche Capital Emas Holdings Berhad had cash of RM30m and no debt. Looking at the last year, the company burnt through RM11m. Therefore, from March 2023 it had 2.7 years of cash runway. That's decent, giving the company a couple years to develop its business. Depicted below, you can see how its cash holdings have changed over time.

How Well Is Niche Capital Emas Holdings Berhad Growing?

We reckon the fact that Niche Capital Emas Holdings Berhad managed to shrink its cash burn by 28% over the last year is rather encouraging. Unfortunately, however, operating revenue declined by 6.8% during the period. On balance, we'd say the company is improving over time. In reality, this article only makes a short study of the company's growth data. You can take a look at how Niche Capital Emas Holdings Berhad has developed its business over time by checking this visualization of its revenue and earnings history.

How Easily Can Niche Capital Emas Holdings Berhad Raise Cash?

Niche Capital Emas Holdings Berhad seems to be in a fairly good position, in terms of cash burn, but we still think it's worthwhile considering how easily it could raise more money if it wanted to. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. Commonly, a business will sell new shares in itself to raise cash and drive 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.

Niche Capital Emas Holdings Berhad's cash burn of RM11m is about 6.2% of its RM178m market capitalisation. 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 Niche Capital Emas Holdings Berhad's Cash Burn Situation?

As you can probably tell by now, we're not too worried about Niche Capital Emas Holdings Berhad's cash burn. For example, we think its cash runway suggests that the company is on a good path. While its falling revenue wasn't great, the other factors mentioned in this article more than make up for weakness on that measure. Based on the factors mentioned in this article, we think its cash burn situation warrants some attention from shareholders, but we don't think they should be worried. Taking a deeper dive, we've spotted 5 warning signs for Niche Capital Emas Holdings Berhad you should be aware of, and 2 of them make us uncomfortable.

Of course Niche Capital Emas Holdings 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.