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Here's Why We're Watching Niche Capital Emas Holdings Berhad's (KLSE:NICE) Cash Burn Situation

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. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

So should Niche Capital Emas Holdings Berhad (KLSE:NICE) shareholders be worried about its cash burn? For the purpose of this article, we'll define cash burn as the amount of cash the company is spending each year to fund its growth (also called its negative free cash flow). First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

See our latest analysis for Niche Capital Emas Holdings Berhad

How Long Is Niche Capital Emas Holdings Berhad's Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In September 2022, Niche Capital Emas Holdings Berhad had RM5.9m in cash, and was debt-free. In the last year, its cash burn was RM11m. So it had a cash runway of approximately 7 months from September 2022. That's quite a short cash runway, indicating the company must either reduce its annual cash burn or replenish its cash. Depicted below, you can see how its cash holdings have changed over time.

debt-equity-history-analysis
debt-equity-history-analysis

How Well Is Niche Capital Emas Holdings Berhad Growing?

Niche Capital Emas Holdings Berhad reduced its cash burn by 4.4% during the last year, which points to some degree of discipline. On top of that, operating revenue was up 24%, making for a heartening combination On balance, we'd say the company is improving over time. Of course, we've only taken a quick look at the stock's growth metrics, here. You can take a look at how Niche Capital Emas Holdings Berhad has developed its business over time by checking this visualization of its revenue and earnings history.

How Easily Can Niche Capital Emas Holdings Berhad Raise Cash?

Given Niche Capital Emas Holdings Berhad's revenue is receding, there's a considerable chance it will eventually need to raise more money to spend on driving 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. 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.

Since it has a market capitalisation of RM133m, Niche Capital Emas Holdings Berhad's RM11m in cash burn equates to about 8.1% of its market value. Given that is a rather small percentage, it would probably be really easy for the company to fund another year's growth by issuing some new shares to investors, or even by taking out a loan.

So, Should We Worry About Niche Capital Emas Holdings Berhad's Cash Burn?

Even though its cash runway makes us a little nervous, we are compelled to mention that we thought Niche Capital Emas Holdings Berhad's cash burn relative to its market cap 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. On another note, Niche Capital Emas Holdings Berhad has 5 warning signs (and 2 which are a bit unpleasant) we think you should know about.

Of course Niche Capital Emas Holdings Berhad 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

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