Just because a company isn’t making money doesn’t mean the stock will fall. Biotech and mining companies, for example, often lose money for years before they succeed with a new treatment or mineral discovery. The harsh reality, however, is that a great many loss-making companies burn through all their cash and go bust.

Given this risk, we wanted to check whether Alset International (Catalist:40V) Shareholders should be concerned about cash burn. In this report, we will look at the company’s annual negative free cash flow, which is referred to as its “cash burn.” Let’s start by examining the company’s cash holdings relative to its cash burn.

Check out our latest analysis for Alset International

How long is Alset International’s cash runway?

You can calculate a company’s cash reserve by dividing its cash balance by the rate at which it is spending that cash. As of June 2024, Alset International had S$29m in cash and no debt. Over the last year, the company burned through S$12m. This means that as of June 2024, it had about 2.4 years of cash reserve. That’s decent, and gives the company a few years to build up its business. The image below shows how cash balance has changed over the past few years.

Is Alset International’s sales increasing?

We’re hesitant to extrapolate the recent trend to assess cash burn, since Alset International actually had positive free cash flow last year, so operating revenue growth is probably our best metric right now. The grim reality for shareholders is that operating revenue is down 67% over the last twelve months, which is not something we want to see in a company that’s burning cash. Of course, we’ve only taken a quick look at the stock’s growth metrics here. This graph of historical earnings and revenue shows how Alset International is building its business over time.

How easy is it for Alset International to obtain cash?

Given the problematic revenue decline, Alset International shareholders should think about how the company might fund its growth if it turns out it needs more cash. Issuing new shares or taking on debt are the most common ways for a publicly traded company to raise more money for its business. One of the key advantages of publicly traded companies is that they can sell shares to investors to raise money and fund growth. By looking at a company’s cash burn relative to its market capitalization, we gain insight into the dilution that shareholders would face if the company had to raise enough cash to cover another year’s cash burn.

Alset International’s cash burn of S$12 million represents about 13% of its market capitalization of S$87 million. Given this situation, it is fair to assume that the company would not have much trouble raising more cash for growth, but shareholders would be somewhat diluted.

Is Alset International’s cash usage a cause for concern?

While we are a little concerned about the declining revenue, we must mention that we found Alset International’s cash runway to be relatively promising. Companies that burn cash are always on the riskier side, but after considering all the factors discussed in this short article, we are not too concerned about the rate of cash burn. Upon closer inspection, we discovered the following: 3 warning signs for Alset International You should be aware of these, and one of them may be serious.

Naturally, If you look elsewhere, you may find a fantastic investment. So take a look at the free List of interesting companies and this list of growth stocks (according to analyst forecasts)

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This Simply Wall St article is of a general nature. We comment solely on the basis of historical data and analyst forecasts, using an unbiased methodology. Our articles do not constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.