Here's Why We're Watching Ash-Sharqiyah Development's (TADAWUL:6060) Cash Burn Situation

Just because a business does not make any money, does not mean that the stock will go down. 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. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

So should Ash-Sharqiyah Development (TADAWUL:6060) shareholders be worried about its 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. Let's start with an examination of the business' cash, relative to its cash burn.

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When Might Ash-Sharqiyah Development Run Out Of Money?

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 March 2025, Ash-Sharqiyah Development had ر.س132m in cash, and was debt-free. In the last year, its cash burn was ر.س69m. That means it had a cash runway of around 23 months as of March 2025. That's not too bad, but it's fair to say the end of the cash runway is in sight, unless cash burn reduces drastically. Depicted below, you can see how its cash holdings have changed over time.

Check out our latest analysis for Ash-Sharqiyah Development

How Is Ash-Sharqiyah Development's Cash Burn Changing Over Time?

Whilst it's great to see that Ash-Sharqiyah Development has already begun generating revenue from operations, last year it only produced ر.س131m, so we don't think it is generating significant revenue, at this point. Therefore, for the purposes of this analysis we'll focus on how the cash burn is tracking. Its cash burn positively exploded in the last year, up 2,276%. Given that sharp increase in spending, the company's cash runway will shrink rapidly as it depletes its cash reserves. 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 Ash-Sharqiyah Development is building its business over time.

Can Ash-Sharqiyah Development Raise More Cash Easily?

Given its cash burn trajectory, Ash-Sharqiyah Development shareholders may wish to consider how easily it could raise more cash, despite its solid cash runway. Companies can raise capital through either debt or equity. 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).

Since it has a market capitalisation of ر.س437m, Ash-Sharqiyah Development's ر.س69m in cash burn equates to about 16% of its market value. Given that situation, it's fair to say the company wouldn't have much trouble raising more cash for growth, but shareholders would be somewhat diluted.

So, Should We Worry About Ash-Sharqiyah Development's Cash Burn?

Even though its increasing cash burn makes us a little nervous, we are compelled to mention that we thought Ash-Sharqiyah Development's cash runway was relatively promising. We don't think its cash burn is particularly problematic, but after considering the range of factors in this article, we do think shareholders should be monitoring how it changes over time. For us, it's always important to consider risks around cash burn rates. But investors should look at a whole range of factors when researching a new stock. For example, it could be interesting to see how much the Ash-Sharqiyah Development CEO receives in total remuneration.

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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.