Here's Why We're Not Too Worried About Saudi Industrial Export's (TADAWUL:4140) Cash Burn Situation

We can readily understand why investors are attracted to unprofitable companies. For example, although software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you'd have done very well indeed. 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, the natural question for Saudi Industrial Export (TADAWUL:4140) 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. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

View our latest analysis for Saudi Industrial Export

Does Saudi Industrial Export 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. When Saudi Industrial Export last reported its balance sheet in December 2021, it had zero debt and cash worth ر.س7.5m. In the last year, its cash burn was ر.س803k. Therefore, from December 2021 it had 9.3 years of cash runway. While this is only one measure of its cash burn situation, it certainly gives us the impression that holders have nothing to worry about. Depicted below, you can see how its cash holdings have changed over time.

How Well Is Saudi Industrial Export Growing?

Given our focus on Saudi Industrial Export's cash burn, we're delighted to see that it reduced its cash burn by a nifty 95%. But the top line growth tells a different story, with operating revenue falling 52% in that time. Considering the factors above, the company doesn’t fare badly when it comes to assessing how it is changing over time. In reality, this article only makes a short study of the company's growth data. You can take a look at how Saudi Industrial Export has developed its business over time by checking this visualization of its revenue and earnings history.

How Hard Would It Be For Saudi Industrial Export To Raise More Cash For Growth?

There's no doubt Saudi Industrial Export seems to be in a fairly good position, when it comes to managing its cash burn, but even if it's only hypothetical, it's always worth asking how easily it could raise more money to fund growth. 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 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.

Saudi Industrial Export's cash burn of ر.س803k is about 0.4% of its ر.س210m market capitalisation. That means it could easily issue a few shares to fund more growth, and might well be in a position to borrow cheaply.

So, Should We Worry About Saudi Industrial Export's Cash Burn?

It may already be apparent to you that we're relatively comfortable with the way Saudi Industrial Export is burning through its cash. In particular, we think its cash burn reduction stands out as evidence that the company is well on top of its spending. While we must concede that its falling revenue is a bit worrying, the other factors mentioned in this article provide great comfort when it comes to the cash burn. After taking into account the various metrics mentioned in this report, we're pretty comfortable with how the company is spending its cash. An in-depth examination of risks revealed 3 warning signs for Saudi Industrial Export that readers should think about before committing capital to this stock.

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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.