We're Not Very Worried About Global Palm Resources Holdings' (SGX:BLW) Cash Burn Rate

There's no doubt that money can be made by owning shares of unprofitable businesses. 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 should Global Palm Resources Holdings (SGX:BLW) 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. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

View our latest analysis for Global Palm Resources Holdings

How Long Is Global Palm Resources Holdings' 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. As at December 2020, Global Palm Resources Holdings had cash of Rp181b and such minimal debt that we can ignore it for the purposes of this analysis. Looking at the last year, the company burnt through Rp17b. So it had a very long cash runway of many years from 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. You can see how its cash balance has changed over time in the image below.

How Well Is Global Palm Resources Holdings Growing?

At first glance it's a bit worrying to see that Global Palm Resources Holdings actually boosted its cash burn by 5.0%, year on year. The revenue growth of 6.8% gives a ray of hope, at the very least. In light of the data above, we're fairly sanguine about the business growth trajectory. In reality, this article only makes a short study of the company's growth data. You can take a look at how Global Palm Resources Holdings has developed its business over time by checking this visualization of its revenue and earnings history.

How Hard Would It Be For Global Palm Resources Holdings To Raise More Cash For Growth?

We are certainly impressed with the progress Global Palm Resources Holdings has made over the last year, but it is also worth considering how costly it would be if it wanted to raise more cash to fund faster growth. 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 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.

Global Palm Resources Holdings has a market capitalisation of Rp496b and burnt through Rp17b last year, which is 3.4% of the company's market value. That's a low proportion, so we figure the company would be able to raise more cash to fund growth, with a little dilution, or even to simply borrow some money.

So, Should We Worry About Global Palm Resources Holdings' Cash Burn?

As you can probably tell by now, we're not too worried about Global Palm Resources Holdings' cash burn. For example, we think its cash runway suggests that the company is on a good path. Although its increasing cash burn does give us reason for pause, the other metrics we discussed in this article form a positive picture overall. After taking into account the various metrics mentioned in this report, we're pretty comfortable with how the company is spending its cash, as it seems on track to meet its needs over the medium term. On another note, we conducted an in-depth investigation of the company, and identified 4 warning signs for Global Palm Resources Holdings (1 is significant!) that you should be aware of before investing here.

Of course Global Palm Resources Holdings 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. 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.
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