Is Tourism Enterprises (TADAWUL:4170) In A Good Position To Deliver On Growth Plans?

Published
June 21, 2022
SASE:4170
Source: Shutterstock

We can readily understand why investors are attracted to unprofitable companies. 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. 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 should Tourism Enterprises (TADAWUL:4170) shareholders be worried about its cash burn? For the purpose of this article, we'll define cash burn as the amount of cash the company is spending each year to fund its growth (also called its negative free cash flow). 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 Tourism Enterprises

Does Tourism Enterprises Have A Long Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at March 2022, Tourism Enterprises had cash of ر.س7.7m and no debt. In the last year, its cash burn was ر.س8.6m. So it had a cash runway of approximately 11 months from March 2022. That's quite a short cash runway, indicating the company must either reduce its annual cash burn or replenish its cash. Depicted below, you can see how its cash holdings have changed over time.

debt-equity-history-analysis
SASE:4170 Debt to Equity History June 21st 2022

Is Tourism Enterprises' Revenue Growing?

We're hesitant to extrapolate on the recent trend to assess its cash burn, because Tourism Enterprises actually had positive free cash flow last year, so operating revenue growth is probably our best bet to measure, right now. Regrettably, the company's operating revenue moved in the wrong direction over the last twelve months, declining by 14%. Of course, we've only taken a quick look at the stock's growth metrics, here. This graph of historic earnings and revenue shows how Tourism Enterprises is building its business over time.

Can Tourism Enterprises Raise More Cash Easily?

Since its revenue growth is moving in the wrong direction, Tourism Enterprises shareholders may wish to think ahead to when the company may need to raise more cash. Companies can raise capital through either debt or equity. Many companies end up issuing new shares to fund future growth. We can compare a company's cash burn to its market capitalisation to get a sense for how many new shares a company would have to issue to fund one year's operations.

Tourism Enterprises' cash burn of ر.س8.6m is about 0.8% of its ر.س1.0b 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.

Is Tourism Enterprises' Cash Burn A Worry?

Even though its falling revenue makes us a little nervous, we are compelled to mention that we thought Tourism Enterprises' cash burn relative to its market cap was relatively promising. While we're the kind of investors who are always a bit concerned about the risks involved with cash burning companies, the metrics we have discussed in this article leave us relatively comfortable about Tourism Enterprises' situation. Taking a deeper dive, we've spotted 3 warning signs for Tourism Enterprises you should be aware of, and 2 of them can't be ignored.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies, and this list of stocks growth stocks (according to analyst forecasts)

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