Is Waja Konsortium Berhad (KLSE:WAJA) In A Good Position To Invest In 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. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

So, the natural question for Waja Konsortium Berhad (KLSE:WAJA) shareholders is whether they should be concerned by its rate of cash burn. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

Check out our latest analysis for Waja Konsortium Berhad

How Long Is Waja Konsortium Berhad's Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In December 2021, Waja Konsortium Berhad had RM19m in cash, and was debt-free. Importantly, its cash burn was RM21m over the trailing twelve months. That means it had a cash runway of around 11 months as of December 2021. To be frank, this kind of short runway puts us on edge, as it indicates the company must reduce its cash burn significantly, or else raise cash imminently. Depicted below, you can see how its cash holdings have changed over time.

How Well Is Waja Konsortium Berhad Growing?

Notably, Waja Konsortium Berhad actually ramped up its cash burn very hard and fast in the last year, by 174%, signifying heavy investment in the business. It seems likely that the vociferous operating revenue growth of 129% during that time may well have given management confidence to ramp investment. In light of the data above, we're fairly sanguine about the business growth trajectory. In reality, this article only makes a short study of the company's growth data. You can take a look at how Waja Konsortium Berhad is growing revenue over time by checking this visualization of past revenue growth.

How Easily Can Waja Konsortium Berhad Raise Cash?

Since Waja Konsortium Berhad has been boosting its cash burn, the market will likely be considering how it can raise more cash if need be. Companies can raise capital through either debt or equity. 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.

Waja Konsortium Berhad has a market capitalisation of RM99m and burnt through RM21m last year, which is 22% of the company's market value. That's not insignificant, and if the company had to sell enough shares to fund another year's growth at the current share price, you'd likely witness fairly costly dilution.

So, Should We Worry About Waja Konsortium Berhad's Cash Burn?

Even though its increasing cash burn makes us a little nervous, we are compelled to mention that we thought Waja Konsortium Berhad's revenue growth was relatively promising. Summing up, we think the Waja Konsortium Berhad's cash burn is a risk, based on the factors we mentioned in this article. Taking a deeper dive, we've spotted 4 warning signs for Waja Konsortium Berhad you should be aware of, and 2 of them shouldn't be ignored.

Of course Waja Konsortium 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. 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.