Companies Like Arab Sea Information Systems (TADAWUL:7201) Can Afford To Invest In 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. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

So, the natural question for Arab Sea Information Systems (TADAWUL:7201) 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.

See our latest analysis for Arab Sea Information Systems

Does Arab Sea Information Systems Have A Long Cash Runway?

You can calculate a company's cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. When Arab Sea Information Systems last reported its June 2024 balance sheet in August 2024, it had zero debt and cash worth ر.س2.3m. In the last year, its cash burn was ر.س187k. So it had a very long cash runway of many years from June 2024. 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.

How Well Is Arab Sea Information Systems Growing?

Given our focus on Arab Sea Information Systems' cash burn, we're delighted to see that it reduced its cash burn by a nifty 98%. And while hardly exciting, it was still good to see revenue growth of 12% during that time. It seems to be growing nicely. Of course, we've only taken a quick look at the stock's growth metrics, here. You can take a look at how Arab Sea Information Systems has developed its business over time by checking this visualization of its revenue and earnings history.

Can Arab Sea Information Systems Raise More Cash Easily?

While Arab Sea Information Systems seems to be in a decent position, we reckon it is still worth thinking about how easily it could raise more cash, if that proved desirable. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. Many companies end up issuing new shares to fund future 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.س732m, Arab Sea Information Systems' ر.س187k in cash burn equates to about 0.03% 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.

Is Arab Sea Information Systems' Cash Burn A Worry?

It may already be apparent to you that we're relatively comfortable with the way Arab Sea Information Systems is burning through its cash. In particular, we think its cash burn reduction stands out as evidence that the company is well on top of its spending. Its weak point is its revenue growth, but even that wasn't too bad! After taking into account the various metrics mentioned in this report, we're pretty comfortable with how the company is spending its cash. Readers need to have a sound understanding of business risks before investing in a stock, and we've spotted 1 warning sign for Arab Sea Information Systems that potential shareholders should take into account before putting money into a stock.

Of course Arab Sea Information Systems 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 with high insider ownership.

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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.