We Think AppAsia Berhad (KLSE:APPASIA) Can Easily Afford To Drive Business Growth

Just because a business does not make any money, does not mean that the stock will go down. 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 history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

So, the natural question for AppAsia Berhad (KLSE:APPASIA) shareholders is whether they should be concerned by its rate of cash burn. 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). Let's start with an examination of the business' cash, relative to its cash burn.

See our latest analysis for AppAsia Berhad

How Long Is AppAsia 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. As at December 2021, AppAsia Berhad had cash of RM9.2m and no debt. Looking at the last year, the company burnt through RM682k. So it had a very long cash runway of many years from December 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. The image below shows how its cash balance has been changing over the last few years.

Is AppAsia Berhad's Revenue Growing?

We're hesitant to extrapolate on the recent trend to assess its cash burn, because AppAsia 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 13%. In reality, this article only makes a short study of the company's growth data. This graph of historic earnings and revenue shows how AppAsia Berhad is building its business over time.

How Easily Can AppAsia Berhad Raise Cash?

Given its problematic fall in revenue, AppAsia Berhad shareholders should consider how the company could fund its growth, if it turns out it needs more cash. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. 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).

AppAsia Berhad's cash burn of RM682k is about 0.7% of its RM97m market capitalisation. So it could almost certainly just borrow a little to fund another year's growth, or else easily raise the cash by issuing a few shares.

Is AppAsia Berhad's Cash Burn A Worry?

It may already be apparent to you that we're relatively comfortable with the way AppAsia Berhad is burning through its cash. In particular, we think its cash runway stands out as evidence that the company is well on top of its spending. Although its falling revenue 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, which seems to be under control. Its important for readers to be cognizant of the risks that can affect the company's operations, and we've picked out 2 warning signs for AppAsia Berhad that investors should know when investing in the stock.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies insiders are buying, and this list of stocks growth stocks (according to analyst forecasts)

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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.