Companies Like Malaysian Genomics Resource Centre Berhad (KLSE:MGRC) 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. For example, Malaysian Genomics Resource Centre Berhad (KLSE:MGRC) shareholders have done very well over the last year, with the share price soaring by 302%. 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.

Given its strong share price performance, we think it's worthwhile for Malaysian Genomics Resource Centre 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.

Check out our latest analysis for Malaysian Genomics Resource Centre Berhad

How Long Is Malaysian Genomics Resource Centre 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, Malaysian Genomics Resource Centre Berhad had RM11m in cash, and was debt-free. In the last year, its cash burn was RM6.8m. Therefore, from June 2021 it had roughly 20 months of cash runway. That's not too bad, but it's fair to say the end of the cash runway is in sight, unless cash burn reduces drastically. You can see how its cash balance has changed over time in the image below.

How Easily Can Malaysian Genomics Resource Centre Berhad Raise Cash?

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 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.

Since it has a market capitalisation of RM328m, Malaysian Genomics Resource Centre Berhad's RM6.8m in cash burn equates to about 2.1% 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 Malaysian Genomics Resource Centre Berhad's Cash Burn?

Because Malaysian Genomics Resource Centre Berhad is an early stage company, we don't have a great deal of data on which to form an opinion of its cash burn. However, it is fair to say that its cash burn relative to its market cap gave us comfort. The bottom line is that we think its cash burn seems fairly reasonable, given it is still chasing growth. Taking a deeper dive, we've spotted 3 warning signs for Malaysian Genomics Resource Centre Berhad you should be aware of, and 2 of them are a bit unpleasant.

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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