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

We can readily understand why investors are attracted to unprofitable companies. Indeed, Niche Capital Emas Holdings Berhad (KLSE:NICE) stock is up 254% in the last year, providing strong gains for shareholders. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

In light of its strong share price run, we think now is a good time to investigate how risky Niche Capital Emas Holdings Berhad's cash burn is. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

View our latest analysis for Niche Capital Emas Holdings Berhad

How Long Is Niche Capital Emas Holdings Berhad's Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Niche Capital Emas Holdings Berhad last reported its balance sheet in September 2020, it had zero debt and cash worth RM7.5m. Importantly, its cash burn was RM5.0m over the trailing twelve months. That means it had a cash runway of around 18 months as of September 2020. While that cash runway isn't too concerning, sensible holders would be peering into the distance, and considering what happens if the company runs out of cash. You can see how its cash balance has changed over time in the image below.

How Well Is Niche Capital Emas Holdings Berhad Growing?

It was fairly positive to see that Niche Capital Emas Holdings Berhad reduced its cash burn by 54% during the last year. But it was the operating revenue growth of 111% that really shone. Overall, we'd say its growth is rather impressive. In reality, this article only makes a short study of the company's growth data. This graph of historic revenue growth shows how Niche Capital Emas Holdings Berhad is building its business over time.

How Hard Would It Be For Niche Capital Emas Holdings Berhad To Raise More Cash For Growth?

There's no doubt Niche Capital Emas Holdings 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. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund 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 RM5.0m is about 2.9% of its RM168m market capitalisation. So it could almost certainly just borrow a little to fund another year's growth, or else easily raise the cash by issuing a few shares.

How Risky Is Niche Capital Emas Holdings Berhad's Cash Burn Situation?

It may already be apparent to you that we're relatively comfortable with the way Niche Capital Emas Holdings 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. Its cash runway wasn't quite as good, but was still rather encouraging! 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 4 warning signs for Niche Capital Emas Holdings Berhad you should be aware of, and 1 of them doesn't sit too well with us.

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. 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.
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