We Think Niche Capital Emas Holdings Berhad (KLSE:NICE) Needs To Drive Business Growth Carefully

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. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

So should Niche Capital Emas Holdings Berhad (KLSE:NICE) shareholders be worried about its cash burn? 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

Does Niche Capital Emas Holdings Berhad Have A Long Cash Runway?

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 September 2022, Niche Capital Emas Holdings Berhad had RM5.9m in cash, and was debt-free. Importantly, its cash burn was RM11m over the trailing twelve months. Therefore, from September 2022 it had roughly 7 months of cash runway. 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. 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 reduced its cash burn by 4.4% during the last year, which points to some degree of discipline. And considering that its operating revenue gained 24% during that period, that's great to see. On balance, we'd say the company is improving over time. Of course, we've only taken a quick look at the stock's growth metrics, here. 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 Hard Would It Be For Niche Capital Emas Holdings Berhad To Raise More Cash For Growth?

Given Niche Capital Emas Holdings Berhad's revenue is receding, there's a considerable chance it will eventually need to raise more money to spend on driving growth. 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. 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).

Niche Capital Emas Holdings Berhad has a market capitalisation of RM153m and burnt through RM11m last year, which is 7.0% of the company's market value. That's a low proportion, so we figure the company would be able to raise more cash to fund growth, with a little dilution, or even to simply borrow some money.

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 cash runway has us a bit worried. We don't think its cash burn is particularly problematic, but after considering the range of factors in this article, we do think shareholders should be monitoring how it changes over time. On another note, we conducted an in-depth investigation of the company, and identified 6 warning signs for Niche Capital Emas Holdings Berhad (2 shouldn't be ignored!) 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 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.