Companies Like M N C Wireless Berhad (KLSE:MNC) Are In A Position To Invest In Growth

There's no doubt that money can be made by owning shares of unprofitable businesses. By way of example, M N C Wireless Berhad (KLSE:MNC) has seen its share price rise 150% 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.

Given its strong share price performance, we think it's worthwhile for M N C Wireless Berhad shareholders to consider whether its cash burn is concerning. 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. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

Check out our latest analysis for M N C Wireless Berhad

How Long Is M N C Wireless Berhad's 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. In October 2020, M N C Wireless Berhad had RM69m in cash, and was debt-free. In the last year, its cash burn was RM6.9m. So it had a cash runway of about 10.0 years from October 2020. 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.

How Well Is M N C Wireless Berhad Growing?

It was quite stunning to see that M N C Wireless Berhad increased its cash burn by 347% over the last year. While operating revenue was up over the same period, the 9.2% gain gives us scant comfort. Considering these two factors together makes us nervous about the direction the company seems to be heading. Of course, we've only taken a quick look at the stock's growth metrics, here. You can take a look at how M N C Wireless Berhad has developed its business over time by checking this visualization of its revenue and earnings history.

How Hard Would It Be For M N C Wireless Berhad To Raise More Cash For Growth?

Even though it seems like M N C Wireless Berhad is developing its business nicely, we still like to consider how easily it could raise more money to accelerate growth. 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.

Since it has a market capitalisation of RM88m, M N C Wireless Berhad's RM6.9m in cash burn equates to about 7.8% of its 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 M N C Wireless Berhad's Cash Burn?

On this analysis of M N C Wireless Berhad's cash burn, we think its cash runway was reassuring, while its increasing cash burn has us a bit worried. Based on the factors mentioned in this article, we think its cash burn situation warrants some attention from shareholders, but we don't think they should be worried. On another note, M N C Wireless Berhad has 4 warning signs (and 2 which don't sit too well with us) we think you should know about.

Of course M N C Wireless 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.

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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.
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