There is no doubt that it is possible to make money by owning shares of unprofitable companies. For example, although Amazon.com posted losses for many years after it listed, if you had bought and held the stock since 1999, you would have made a fortune. But the harsh reality is that many, many loss-making companies burn all their money and go bankrupt.
So the natural question for Waja Konsortium Berhad (KLSE:WAJA) shareholders is whether they should be concerned about its cash burn rate. For the purposes of this article, we will define cash burn as the amount of money the business spends each year to finance its growth (also known as negative free cash flow). The first step is to compare its cash consumption with its cash reserves, to give us its “cash trail”.
Check out our latest analysis for Waja Konsortium Berhad
How long is the Waja Konsortium Berhad cash trail?
A cash trail is defined as the length of time it would take a business to run out of cash if it continued to spend at its current rate of cash burn. As of September 2021, Waja Konsortium Berhad had cash of RM24 million and no debt. Looking at last year, the company burned RM21 million. Therefore, as of September 2021, he had around 14 months of cash. That’s not too bad, but it’s fair to say that the end of the cash trail is in sight unless cash consumption drops significantly. Below you can see how its liquidity has changed over time.
How is Waja Konsortium Berhad growing?
It was quite amazing to see that Waja Konsortium Berhad increased its cash consumption by 705% over the last year. Of course, the truly skyrocketing revenue growth of 147% over this period may well justify the growth expenditure. Given these two factors, we’re not particularly excited about its growth profile. In reality, this article only makes a short study of the company’s growth data. This historical revenue growth chart shows how Waja Konsortium Berhad is growing its business over time.
How easily can Waja Konsortium Berhad raise funds?
Waja Konsortium Berhad seems to be in a pretty good position, in terms of cash burn, but we still think it’s worth it considering how easily it could raise more money if it wanted to. In general, a listed company can raise new funds by issuing shares or by going into debt. Many companies end up issuing new shares to fund their future growth. By comparing a company’s annual cash burn to its total market capitalization, we can roughly estimate how many shares it would need to issue to keep the company running for another year (at the same burn rate).
Waja Konsortium Berhad has a market capitalization of RM121 million and burned RM21 million last year, or 17% of the company’s market value. Given this situation, it’s fair to say that the company wouldn’t have much trouble raising more cash for growth, but shareholders would be somewhat diluted.
Is Waja Konsortium Berhad’s cash burn a concern?
On this analysis of Waja Konsortium Berhad’s cash burn, we think its revenue growth was reassuring, while its growing cash burn worries us a bit. We don’t think its cash burn is particularly problematic, but after considering the range of factors discussed in this article, we think shareholders should monitor its evolution over time. Separately, we looked at different risks affecting the business and identified 4 warning signs for Waja Konsortium Berhad (2 of which are a bit of a concern!) that you should know about.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.