Stock Analysis

We're Keeping An Eye On Artroniq Berhad's (KLSE:ARTRONIQ) Cash Burn Rate

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There's no doubt that money can be made by owning shares of unprofitable businesses. For example, although made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

So should Artroniq Berhad (KLSE:ARTRONIQ) shareholders be worried about its 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. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

Check out our latest analysis for Artroniq Berhad

How Long Is Artroniq Berhad's Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Artroniq Berhad last reported its balance sheet in June 2021, it had zero debt and cash worth RM8.7m. In the last year, its cash burn was RM15m. Therefore, from June 2021 it had roughly 7 months of cash runway. That's quite a short cash runway, indicating the company must either reduce its annual cash burn or replenish its cash. You can see how its cash balance has changed over time in the image below.

KLSE:ARTRONIQ Debt to Equity History October 7th 2021

Is Artroniq Berhad's Revenue Growing?

We're hesitant to extrapolate on the recent trend to assess its cash burn, because Artroniq Berhad actually had positive free cash flow last year, so operating revenue growth is probably our best bet to measure, right now. Notably, its strong revenue growth of 100% over the last year is genuinely cause for optimism. Of course, we've only taken a quick look at the stock's growth metrics, here. This graph of historic revenue growth shows how Artroniq Berhad is building its business over time.

How Hard Would It Be For Artroniq Berhad To Raise More Cash For Growth?

There's no doubt Artroniq Berhad's revenue growth is impressive but even if it's only hypothetical, it's always worth asking how easily it could raise more money to fund further 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 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).

Artroniq Berhad's cash burn of RM15m is about 16% of its RM95m market capitalisation. Given that situation, it's fair to say the company wouldn't have much trouble raising more cash for growth, but shareholders would be somewhat diluted.

So, Should We Worry About Artroniq Berhad's Cash Burn?

On this analysis of Artroniq Berhad's cash burn, we think its revenue growth was reassuring, while its cash runway has us a bit worried. Summing up, we think the Artroniq 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 5 warning signs for Artroniq Berhad (of which 2 are a bit unpleasant!) you should know about.

If you would prefer to check out another company with better fundamentals, then do not miss this free list of interesting companies, that have HIGH return on equity and low debt or this list of stocks which are all forecast to grow.

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