We Think Malaysian Genomics Resource Centre Berhad (KLSE:MGRC) Can Afford To Drive Business Growth

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, 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. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

Given this risk, we thought we'd take a look at whether Malaysian Genomics Resource Centre Berhad (KLSE:MGRC) shareholders should 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 Malaysian Genomics Resource Centre Berhad

When Might Malaysian Genomics Resource Centre Berhad Run Out Of Money?

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. When Malaysian Genomics Resource Centre Berhad last reported its balance sheet in September 2021, it had zero debt and cash worth RM21m. Importantly, its cash burn was RM9.1m over the trailing twelve months. Therefore, from September 2021 it had 2.4 years of cash runway. Arguably, that's a prudent and sensible length of runway to have. 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?

Companies can raise capital through either debt or equity. Many companies end up issuing new shares to fund future growth. We can compare a company's cash burn to its market capitalisation to get a sense for how many new shares a company would have to issue to fund one year's operations.

Malaysian Genomics Resource Centre Berhad has a market capitalisation of RM166m and burnt through RM9.1m last year, which is 5.5% 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.

So, Should We Worry About Malaysian Genomics Resource Centre Berhad's Cash Burn?

Given it's an early stage company, we don't have a lot of data with which to judge Malaysian Genomics Resource Centre Berhad's cash burn. However, it is fair to say that its cash burn relative to its market cap gave us comfort. Overall, we don't think shareholders need to be worried about its cash burn in the near term. Separately, we looked at different risks affecting the company and spotted 5 warning signs for Malaysian Genomics Resource Centre Berhad (of which 1 is concerning!) 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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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.