We're Not Very Worried About Anaam International Holding Group's (TADAWUL:4061) Cash Burn Rate

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 the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

So, the natural question for Anaam International Holding Group (TADAWUL:4061) 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. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

View our latest analysis for Anaam International Holding Group

Does Anaam International Holding Group 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. In December 2020, Anaam International Holding Group had ر.س80m in cash, and was debt-free. In the last year, its cash burn was ر.س16m. That means it had a cash runway of about 5.1 years as of December 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.

How Well Is Anaam International Holding Group Growing?

Notably, Anaam International Holding Group actually ramped up its cash burn very hard and fast in the last year, by 156%, signifying heavy investment in the business. While that's concerning on it's own, the fact that operating revenue was actually down 2.6% over the same period makes us positively tremulous. Considering these two factors together makes us nervous about the direction the company seems to be heading. In reality, this article only makes a short study of the company's growth data. This graph of historic earnings and revenue shows how Anaam International Holding Group is building its business over time.

How Hard Would It Be For Anaam International Holding Group To Raise More Cash For Growth?

While Anaam International Holding Group seems to be in a fairly good position, 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 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.

Anaam International Holding Group has a market capitalisation of ر.س996m and burnt through ر.س16m last year, which is 1.6% of the company's market value. 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.

So, Should We Worry About Anaam International Holding Group's Cash Burn?

It may already be apparent to you that we're relatively comfortable with the way Anaam International Holding Group is burning through its cash. For example, we think its cash runway suggests that the company is on a good path. Although we do find its increasing cash burn to be a bit of a negative, once we consider the other metrics mentioned in this article together, the overall picture is one we are comfortable with. Based on the factors mentioned in this article, we think its cash burn situation warrants some attention from shareholders, but we don't think they should be worried. On another note, we conducted an in-depth investigation of the company, and identified 3 warning signs for Anaam International Holding Group (2 are a bit concerning!) that you should be aware of before investing here.

Of course Anaam International Holding Group 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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