DutaLand Berhad (KLSE:DUTALND) Is In A Good Position To Deliver On Growth Plans

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 Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. 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 DutaLand Berhad (KLSE:DUTALND) shareholders be worried about its cash burn? For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. Let's start with an examination of the business' cash, relative to its cash burn.

See our latest analysis for DutaLand Berhad

Does DutaLand Berhad Have A Long 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. DutaLand Berhad has such a small amount of debt that we'll set it aside, and focus on the RM523m in cash it held at December 2020. Looking at the last year, the company burnt through RM76m. That means it had a cash runway of about 6.9 years as of December 2020. Even though this is but one measure of the company's cash burn, the thought of such a long cash runway warms our bellies in a comforting way. You can see how its cash balance has changed over time in the image below.

Is DutaLand Berhad's Revenue Growing?

Given that DutaLand Berhad actually had positive free cash flow last year, before burning cash this year, we'll focus on its operating revenue to get a measure of the business trajectory. The good news is that operating revenue growth was as flash as a rat with a gold tooth, up 361% in that time. In reality, this article only makes a short study of the company's growth data. You can take a look at how DutaLand Berhad is growing revenue over time by checking this visualization of past revenue growth.

How Easily Can DutaLand Berhad Raise Cash?

While DutaLand Berhad's revenue growth truly does shine bright, it's important not to ignore the possibility that it might need more cash, at some point, even if only to optimise its growth plans. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund 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 RM316m, DutaLand Berhad's RM76m in cash burn equates to about 24% of its market value. That's fairly notable cash burn, so if the company had to sell shares to cover the cost of another year's operations, shareholders would suffer some costly dilution.

Is DutaLand Berhad's Cash Burn A Worry?

As you can probably tell by now, we're not too worried about DutaLand Berhad's cash burn. For example, we think its revenue growth suggests that the company is on a good path. Although its cash burn relative to its market cap does give us reason for pause, the other metrics we discussed in this article form a positive picture overall. Looking at all the measures in this article, together, we're not worried about its rate of cash burn; the company seems well on top of its medium-term spending needs. On another note, DutaLand Berhad has 3 warning signs (and 1 which is potentially serious) we think you should know about.

Of course DutaLand Berhad may not be the best stock to buy. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

When trading stocks or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.