Even when a company is making a loss, it is possible for shareholders to make a profit if they buy a good company at an appropriate price. For example, if you've owned the stock since 2005, Salesforce.com, a software-as-a-service business, has lost money for years while its recurring revenue has grown, but if you've owned the stock since 2005, it's certainly a very It would have worked fine. That being said, there are risks involved, as unprofitable companies can burn through all their cash and go into distress.
So the obvious question is, AHB Holdings Berhad (KLSE:AHB) shareholders are debating whether they should be concerned about its cash burn rate. In this article, we define cash burn as the amount of cash a company spends each year to fund growth (also known as negative free cash flow). First, compare its cash burn to its cash reserves to determine its cash runway.
Check out our latest analysis for AHB Holdings Berhad.
When will AHB Holdings Berhad run out of money?
A company's cash runway is calculated by dividing its cash holdings by its cash burn. As of September 2023, AHB Holdings Berhad had cash of RM7.8m and minimal debt, which can be ignored for the purposes of this analysis. Importantly, its cash burn was RM11m in the trailing twelve months. In other words, the company's funding runway was approximately nine months from September 2023. Frankly, this kind of short runway worries us because it indicates that the company will need to raise money soon if it doesn't significantly reduce its cash burn. You can see how its cash balance has changed over time in the image below.
How has AHB Holdings Berhad's cash burn changed over time?
It's great to see that AHB Holdings Berhad is already starting to generate operating revenue, but with revenue of just RM15m last year, we don't think it's generating significant revenue at the moment. Therefore, in this analysis we will focus on how its cash burn is tracking. Coincidentally, the company's cash burn is 17% lower than last year, suggesting that management may be conscious of the risk of running out of cash. In reality, this article is just a quick study of the company's growth data. This historical revenue growth graph shows how AHB Holdings Berhad is building its business over the long term.
How easily can AHB Holdings Berhad raise funds?
Although its cash burn has been lower recently, shareholders should still consider how easy it will be for AHB Holdings Berhad to raise more cash in the future. The most common ways for publicly traded companies to raise more money for their operations is by issuing new shares or taking on debt. Companies typically sell their new stock to raise cash and fuel 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 run the company for another year (at the same burn rate).
AHB Holdings Berhad's market capitalization is RM95m, so its cash burn of RM11m is equivalent to about 11% of its market value. As a result, we'd venture that the company could raise more cash for growth without too much trouble, even at the cost of some dilution.
How dangerous is AHB Holdings Berhad's cash burn situation?
We have to mention that we thought AHB Holdings Berhad's cash burn was relatively promising compared to its market capitalization, even if its cash runway makes us a little worried. While we don't think cash burn is a problem, the analysis we've conducted in this article suggests that shareholders should think carefully about the potential cost of raising further capital in the future. . On a different note, AHB Holdings Berhad is 5 warning signs (and three related ones) that I think you should know about.
of course, You may find a great investment if you look elsewhere. So take a look at this free A list of companies that insiders are buying, as well as this list of growth stocks (as predicted by analysts).
Have feedback on this article? Curious about its content? contact Please contact us directly. Alternatively, email our 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 using only unbiased methodologies, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
