Is Niche Capital Emas Holdings Berhad (KLSE:NICE) In A Good Position To Deliver On Growth Plans?

We can readily understand why investors are attracted to unprofitable companies. 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.

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. In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. 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

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

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In December 2021, Niche Capital Emas Holdings Berhad had RM9.1m in cash, and was debt-free. In the last year, its cash burn was RM12m. So it had a cash runway of approximately 9 months from December 2021. To be frank, this kind of short runway puts us on edge, as it indicates the company must reduce its cash burn significantly, or else raise cash imminently. However, if we extrapolate the company's recent cash burn trend, then it would have a longer cash run way. Depicted below, you can see how its cash holdings have changed over time.

How Well Is Niche Capital Emas Holdings Berhad Growing?

Niche Capital Emas Holdings Berhad boosted investment sharply in the last year, with cash burn ramping by 87%. That's pretty alarming given that operating revenue dropped 54% over the last year, though the business is likely attempting a strategic pivot. Considering these two factors together makes us nervous about the direction the company seems to be heading. In reality, this article only makes a short study of the company's growth data. This graph of historic earnings and revenue shows how Niche Capital Emas Holdings Berhad is building its business over time.

How Easily Can Niche Capital Emas Holdings Berhad Raise Cash?

Since Niche Capital Emas Holdings Berhad can't yet boast improving growth metrics, the market will likely be considering how it can raise more cash if need be. 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 RM167m, Niche Capital Emas Holdings Berhad's RM12m in cash burn equates to about 7.2% 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.

Is Niche Capital Emas Holdings Berhad's Cash Burn A Worry?

On this analysis of Niche Capital Emas Holdings Berhad's cash burn, we think its cash burn relative to its market cap was reassuring, while its falling revenue has us a bit worried. Summing up, we think the Niche Capital Emas Holdings Berhad's cash burn is a risk, based on the factors we mentioned in this article. Separately, we looked at different risks affecting the company and spotted 6 warning signs for Niche Capital Emas Holdings Berhad (of which 1 is concerning!) you should know about.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies, 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.