We're Not Very Worried About Niche Capital Emas Holdings Berhad's (KLSE:NICE) Cash Burn Rate

We can readily understand why investors are attracted to unprofitable companies. 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. But while the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.

So should Niche Capital Emas Holdings Berhad (KLSE:NICE) shareholders be worried about its cash burn? For the purpose of this article, we'll define cash burn as the amount of cash the company is spending each year to fund its growth (also called its negative free cash flow). Let's start with an examination of the business' cash, relative to its cash burn.

Check out our latest analysis for Niche Capital Emas Holdings Berhad

How Long Is Niche Capital Emas Holdings Berhad's 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. As at March 2021, Niche Capital Emas Holdings Berhad had cash of RM3.6m and no debt. Importantly, its cash burn was RM4.9m over the trailing twelve months. Therefore, from March 2021 it had roughly 9 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. 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. It seems to be growing nicely. In reality, this article only makes a short study of the company's growth data. You can take a look at how Niche Capital Emas Holdings Berhad is growing revenue over time by checking this visualization of past revenue growth.

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. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. Many companies end up issuing new shares to fund future growth. By looking at a company's cash burn relative to its market capitalisation, we gain insight on how much shareholders would be diluted if the company needed to raise enough cash to cover another year's cash burn.

Niche Capital Emas Holdings Berhad has a market capitalisation of RM125m and burnt through RM4.9m last year, which is 4.0% of the company's 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.

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

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. Cash burning companies are always on the riskier side of things, but after considering all of the factors discussed in this short piece, we're not too worried about its rate of cash burn. Taking a deeper dive, we've spotted 6 warning signs for Niche Capital Emas Holdings Berhad you should be aware of, and 2 of them are significant.

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.
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