We're Not Worried About Al-Samaani Factory For Metal Industries' (TADAWUL:1832) Cash Burn

Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. Indeed, Al-Samaani Factory For Metal Industries (TADAWUL:1832) stock is up 269% in the last year, providing strong gains for shareholders. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

In light of its strong share price run, we think now is a good time to investigate how risky Al-Samaani Factory For Metal Industries' cash burn is. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. Let's start with an examination of the business' cash, relative to its cash burn.

View our latest analysis for Al-Samaani Factory For Metal Industries

How Long Is Al-Samaani Factory For Metal Industries' 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 June 2020, Al-Samaani Factory For Metal Industries had ر.س12m in cash, and was debt-free. Looking at the last year, the company burnt through ر.س662k. So it had a very long cash runway of many years from June 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. Depicted below, you can see how its cash holdings have changed over time.

Is Al-Samaani Factory For Metal Industries' Revenue Growing?

Given that Al-Samaani Factory For Metal Industries actually had positive free cash flow last year, before burning cash this year, we'll focus on its operating revenue to get a measure of the business trajectory. It's nice to see that operating revenue was up 24% in the last year. Clearly, however, the crucial factor is whether the company will grow its business going forward. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

How Easily Can Al-Samaani Factory For Metal Industries Raise Cash?

While Al-Samaani Factory For Metal Industries is showing solid revenue growth, it's still worth considering how easily it could raise more cash, even just to fuel faster growth. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. Commonly, a business will sell new shares in itself to raise cash and drive 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).

Since it has a market capitalisation of ر.س867m, Al-Samaani Factory For Metal Industries' ر.س662k in cash burn equates to about 0.08% of its market value. 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 Al-Samaani Factory For Metal Industries' Cash Burn?

As you can probably tell by now, we're not too worried about Al-Samaani Factory For Metal Industries' cash burn. In particular, we think its cash runway stands out as evidence that the company is well on top of its spending. Its revenue growth wasn't quite as good, but was still rather encouraging! Looking at all the measures in this article, together, we're not worried about its rate of cash burn; the company seems well on top of its medium-term spending needs. Taking an in-depth view of risks, we've identified 2 warning signs for Al-Samaani Factory For Metal Industries that you should be aware of before investing.

If you would prefer to check out another company with better fundamentals, then do not miss this free list of interesting companies, that have HIGH return on equity and low debt or this list of stocks which are all forecast to grow.

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