Here's Why Niche Capital Emas Holdings Berhad (KLSE:NICE) Must Use Its Cash Wisely

There's no doubt that money can be made by owning shares of unprofitable businesses. 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. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

So, the natural question for Niche Capital Emas Holdings Berhad (KLSE:NICE) shareholders is whether they should be concerned by its rate of 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. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

Check out our latest analysis for Niche Capital Emas Holdings Berhad

When Might Niche Capital Emas Holdings Berhad Run Out Of Money?

You can calculate a company's cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. In March 2022, Niche Capital Emas Holdings Berhad had RM8.3m in cash, and was debt-free. In the last year, its cash burn was RM15m. That means it had a cash runway of around 7 months as of March 2022. That's quite a short cash runway, indicating the company must either reduce its annual cash burn or replenish its cash. We should note, however, that if we extrapolate recent trends in its cash burn, then its cash runway would get a lot longer. Depicted below, you can see how its cash holdings have changed over time.

How Well Is Niche Capital Emas Holdings Berhad Growing?

One thing for shareholders to keep front in mind is that Niche Capital Emas Holdings Berhad increased its cash burn by 208% in the last twelve months. As if that's not bad enough, the operating revenue also dropped by 36%, making us very wary indeed. In light of the above-mentioned, we're pretty wary of the trajectory the company seems to be on. Of course, we've only taken a quick look at the stock's growth metrics, here. This graph of historic earnings and revenue shows how Niche Capital Emas Holdings Berhad is building its business over time.

Can Niche Capital Emas Holdings Berhad Raise More Cash Easily?

Since Niche Capital Emas Holdings Berhad's revenue is down, and its cash burn is up, shareholders would quite reasonably be considering whether it can raise more money easily, if need be. Companies can raise capital through either debt or equity. 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 RM136m, Niche Capital Emas Holdings Berhad's RM15m in cash burn equates to about 11% of its market value. As a result, we'd venture that the company could raise more cash for growth without much trouble, albeit at the cost of some dilution.

So, Should We Worry About Niche Capital Emas Holdings Berhad's Cash Burn?

Even though its increasing cash burn makes us a little nervous, we are compelled to mention that we thought Niche Capital Emas Holdings Berhad's cash burn relative to its market cap was relatively promising. Considering all the measures mentioned in this report, we reckon that its cash burn is fairly risky, and if we held shares we'd be watching like a hawk for any deterioration. On another note, we conducted an in-depth investigation of the company, and identified 5 warning signs for Niche Capital Emas Holdings Berhad (1 is significant!) that you should be aware of before investing here.

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

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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.