We Think Al-Samaani Factory For Metal Industries (TADAWUL:9504) Can Easily Afford To Drive Business Growth

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. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

Given this risk, we thought we'd take a look at whether Al-Samaani Factory For Metal Industries (TADAWUL:9504) shareholders should be worried about its cash burn. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. 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 Al-Samaani Factory For Metal Industries

How Long Is Al-Samaani Factory For Metal Industries' Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its 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. Even though this is but one measure of the company's cash burn, the thought of such a long cash runway warms our bellies in a comforting way. Depicted below, you can see how its cash holdings have changed over time.

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

We're hesitant to extrapolate on the recent trend to assess its cash burn, because Al-Samaani Factory For Metal Industries actually had positive free cash flow last year, so operating revenue growth is probably our best bet to measure, right now. We think that it's fairly positive to see that revenue grew 24% in the last twelve months. While the past is always worth studying, it is the future that matters most of all. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

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

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. 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. 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).

Al-Samaani Factory For Metal Industries' cash burn of ر.س662k is about 0.1% of its ر.س618m market capitalisation. So it could almost certainly just borrow a little to fund another year's growth, or else easily raise the cash by issuing a few shares.

Is Al-Samaani Factory For Metal Industries' Cash Burn A Worry?

As you can probably tell by now, we're not too worried about Al-Samaani Factory For Metal Industries' cash burn. For example, we think its cash runway suggests that the company is on a good path. 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. Readers need to have a sound understanding of business risks before investing in a stock, and we've spotted 1 warning sign for Al-Samaani Factory For Metal Industries that potential shareholders should take into account before putting money into a stock.

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