Companies Like Seni Jaya Corporation Berhad (KLSE:SJC) Are In A Position To Invest In Growth

Just because a business does not make any money, does not mean that the stock will go down. By way of example, Seni Jaya Corporation Berhad (KLSE:SJC) has seen its share price rise 213% over the last year, delighting many shareholders. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

So notwithstanding the buoyant share price, we think it's well worth asking whether Seni Jaya Corporation Berhad's cash burn is too risky. 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). The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

View our latest analysis for Seni Jaya Corporation Berhad

How Long Is Seni Jaya Corporation Berhad's Cash Runway?

A company's cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. In June 2021, Seni Jaya Corporation Berhad had RM5.0m in cash, and was debt-free. In the last year, its cash burn was RM461k. So it had a very long cash runway of many years from June 2021. While this is only one measure of its cash burn situation, it certainly gives us the impression that holders have nothing to worry about. Depicted below, you can see how its cash holdings have changed over time.

Is Seni Jaya Corporation Berhad's Revenue Growing?

We're hesitant to extrapolate on the recent trend to assess its cash burn, because Seni Jaya Corporation Berhad actually had positive free cash flow last year, so operating revenue growth is probably our best bet to measure, right now. Regrettably, the company's operating revenue moved in the wrong direction over the last twelve months, declining by 48%. Of course, we've only taken a quick look at the stock's growth metrics, here. This graph of historic earnings and revenue shows how Seni Jaya Corporation Berhad is building its business over time.

How Easily Can Seni Jaya Corporation Berhad Raise Cash?

Since its revenue growth is moving in the wrong direction, Seni Jaya Corporation Berhad shareholders may wish to think ahead to when the company may need to raise more cash. 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).

Since it has a market capitalisation of RM139m, Seni Jaya Corporation Berhad's RM461k in cash burn equates to about 0.3% of its market value. That means it could easily issue a few shares to fund more growth, and might well be in a position to borrow cheaply.

So, Should We Worry About Seni Jaya Corporation Berhad's Cash Burn?

As you can probably tell by now, we're not too worried about Seni Jaya Corporation Berhad's cash burn. In particular, we think its cash runway stands out as evidence that the company is well on top of its spending. While we must concede that its falling revenue is a bit worrying, the other factors mentioned in this article provide great comfort when it comes to the cash burn. After taking into account the various metrics mentioned in this report, we're pretty comfortable with how the company is spending its cash. Separately, we looked at different risks affecting the company and spotted 5 warning signs for Seni Jaya Corporation Berhad (of which 1 doesn't sit too well with us!) you should know about.

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)

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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