Companies Like Etihad Atheeb Telecommunication (TADAWUL:7040) Can Afford To Invest In Growth

There's no doubt that money can be made by owning shares of unprofitable businesses. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

So should Etihad Atheeb Telecommunication (TADAWUL:7040) shareholders 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'. Let's start with an examination of the business' cash, relative to its cash burn.

See our latest analysis for Etihad Atheeb Telecommunication

When Might Etihad Atheeb Telecommunication Run Out Of Money?

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. As at September 2022, Etihad Atheeb Telecommunication had cash of ر.س35m and no debt. In the last year, its cash burn was ر.س8.0m. So it had a cash runway of about 4.4 years from September 2022. A runway of this length affords the company the time and space it needs to develop the business. You can see how its cash balance has changed over time in the image below.

How Well Is Etihad Atheeb Telecommunication Growing?

Happily, Etihad Atheeb Telecommunication is travelling in the right direction when it comes to its cash burn, which is down 77% over the last year. And there's no doubt that the inspiriting revenue growth of 72% assisted in that improvement. Considering these factors, we're fairly impressed by its growth trajectory. In reality, this article only makes a short study of the company's growth data. You can take a look at how Etihad Atheeb Telecommunication is growing revenue over time by checking this visualization of past revenue growth.

Can Etihad Atheeb Telecommunication Raise More Cash Easily?

There's no doubt Etihad Atheeb Telecommunication seems to be in a fairly good position, when it comes to managing its cash burn, but even if it's only hypothetical, it's always worth asking how easily it could raise more money to fund growth. 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. 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.

Etihad Atheeb Telecommunication has a market capitalisation of ر.س470m and burnt through ر.س8.0m last year, which is 1.7% 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 Etihad Atheeb Telecommunication's Cash Burn?

As you can probably tell by now, we're not too worried about Etihad Atheeb Telecommunication's cash burn. For example, we think its revenue growth suggests that the company is on a good path. And even its cash burn reduction was very encouraging. After considering a range of factors in this article, we're pretty relaxed about its cash burn, since the company seems to be in a good position to continue to fund its growth. Its important for readers to be cognizant of the risks that can affect the company's operations, and we've picked out 1 warning sign for Etihad Atheeb Telecommunication that investors should know when investing in the stock.

Of course Etihad Atheeb Telecommunication 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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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.