M N C Wireless Berhad (KLSE:MNC) Is In A Good Position To Deliver On Growth Plans

Simply Wall St
April 13, 2022
Source: Shutterstock

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. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

So, the natural question for M N C Wireless Berhad (KLSE:MNC) shareholders is whether they should be concerned by its rate of cash burn. 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. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

Check out our latest analysis for M N C Wireless Berhad

How Long Is M N C Wireless 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 January 2022, M N C Wireless Berhad had cash of RM59m and no debt. In the last year, its cash burn was RM16m. Therefore, from January 2022 it had 3.6 years of cash runway. A runway of this length affords the company the time and space it needs to develop the business. The image below shows how its cash balance has been changing over the last few years.

KLSE:MNC Debt to Equity History April 13th 2022

How Well Is M N C Wireless Berhad Growing?

At first glance it's a bit worrying to see that M N C Wireless Berhad actually boosted its cash burn by 14%, year on year. And we must say we find it concerning that operating revenue dropped 28% over the same period. Taken together, we think these growth metrics are a little worrying. Of course, we've only taken a quick look at the stock's growth metrics, here. This graph of historic earnings and revenue shows how M N C Wireless Berhad is building its business over time.

How Easily Can M N C Wireless Berhad Raise Cash?

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. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund 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 RM91m, M N C Wireless Berhad's RM16m in cash burn equates to about 18% of its market value. As a result, we'd venture that the company could raise more cash for growth without much trouble, albeit at the cost of some dilution.

How Risky Is M N C Wireless Berhad's Cash Burn Situation?

On this analysis of M N C Wireless Berhad's cash burn, we think its cash runway was reassuring, while its falling revenue has us a bit worried. Cash burning companies are always on the riskier side of things, but after considering all of the factors discussed in this short piece, we're not too worried about its rate of cash burn. On another note, M N C Wireless Berhad has 5 warning signs (and 1 which shouldn't be ignored) we think you should know about.

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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