We're Not Very Worried About GRP's (SGX:BLU) Cash Burn Rate

We can readily understand why investors are attracted to unprofitable companies. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

So, the natural question for GRP (SGX:BLU) shareholders is whether they should be concerned by its rate of cash burn. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

View our latest analysis for GRP

How Long Is GRP's 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. When GRP last reported its balance sheet in June 2020, it had zero debt and cash worth S$44m. Importantly, its cash burn was S$5.4m over the trailing twelve months. Therefore, from June 2020 it had 8.2 years of cash runway. While this is only one measure of its cash burn situation, it certainly gives us the impression that holders have nothing to worry about. Depicted below, you can see how its cash holdings have changed over time.

Is GRP's Revenue Growing?

Given that GRP actually had positive free cash flow last year, before burning cash this year, we'll focus on its operating revenue to get a measure of the business trajectory. Unfortunately, the last year has been a disappointment, with operating revenue dropping 43% during the period. 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 GRP is building its business over time.

How Hard Would It Be For GRP To Raise More Cash For Growth?

Given its problematic fall in revenue, GRP shareholders should consider how the company could fund its growth, if it turns out it needs more cash. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. 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.

GRP has a market capitalisation of S$30m and burnt through S$5.4m last year, which is 18% of the company's market value. As a result, we'd venture that the company could raise more cash for growth without much trouble, albeit at the cost of some dilution.

How Risky Is GRP's Cash Burn Situation?

On this analysis of GRP's cash burn, we think its cash runway was reassuring, while its falling revenue has us a bit worried. Considering all the factors discussed in this article, we're not overly concerned about the company's cash burn, although we do think shareholders should keep an eye on how it develops. Taking a deeper dive, we've spotted 2 warning signs for GRP you should be aware of, and 1 of them shouldn't be ignored.

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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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