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 488% 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.

Given its strong share price performance, we think it's worthwhile for Niche Capital Emas Holdings Berhad shareholders to consider whether its cash burn is concerning. 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. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

View our latest analysis for Niche Capital Emas Holdings Berhad

Does Niche Capital Emas Holdings Berhad Have A Long 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 March 2021, Niche Capital Emas Holdings Berhad had RM3.6m in cash, and was debt-free. Importantly, its cash burn was RM4.9m over the trailing twelve months. So it had a cash runway of approximately 9 months from March 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. The image below shows how its cash balance has been changing over the last few years.

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 38% over the last year is rather encouraging. But the operating revenue growth of 111% was even better. We think it is growing rather well, upon reflection. 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 Easily Can Niche Capital Emas Holdings Berhad Raise Cash?

While Niche Capital Emas Holdings Berhad seems to be in a fairly good position, it's still worth considering how easily it could raise more cash, even just to fuel faster growth. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. Many companies end up issuing new shares to fund future 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 RM4.9m is about 2.9% of its RM172m 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.

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

Even though its cash runway makes us a little nervous, we are compelled to mention that we thought Niche Capital Emas Holdings Berhad's revenue growth was relatively promising. Considering all the factors discussed in this article, we're not overly concerned about the company's cash burn, although we do think shareholders should keep an eye on how it develops. Separately, we looked at different risks affecting the company and spotted 5 warning signs for Niche Capital Emas Holdings Berhad (of which 2 are a bit concerning!) you should know about.

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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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