Yahoo Finance Companies Like Yew Lee Pacific Group Berhad (KLSE:YEWLEE) Are In A Position To Invest In Growth
There's no doubt that money can be made by owning shares of unprofitable businesses. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But while the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.
So should Yew Lee Pacific Group Berhad (KLSE:YEWLEE) shareholders be worried about its cash burn? In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. Let's start with an examination of the business' cash, relative to its cash burn.
Check out our latest analysis for Yew Lee Pacific Group Berhad
Does Yew Lee Pacific Group Berhad Have A Long Cash Runway?
A company's cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. In December 2023, Yew Lee Pacific Group Berhad had RM42m in cash, and was debt-free. Importantly, its cash burn was RM9.1m over the trailing twelve months. So it had a cash runway of about 4.6 years from December 2023. There's no doubt that this is a reassuringly long runway. The image below shows how its cash balance has been changing over the last few years.
Is Yew Lee Pacific Group Berhad's Revenue Growing?
Given that Yew Lee Pacific Group Berhad 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 29% during the period. Of course, we've only taken a quick look at the stock's growth metrics, here. You can take a look at how Yew Lee Pacific Group Berhad has developed its business over time by checking this visualization of its revenue and earnings history.
Can Yew Lee Pacific Group Berhad Raise More Cash Easily?
Since its revenue growth is moving in the wrong direction, Yew Lee Pacific Group Berhad shareholders may wish to think ahead to when the company may need to raise more cash. Companies can raise capital through either debt or equity. Many companies end up issuing new shares to fund future growth. By comparing a company's annual cash burn to its total market capitalisation, we can estimate roughly how many shares it would have to issue in order to run the company for another year (at the same burn rate).
Yew Lee Pacific Group Berhad's cash burn of RM9.1m is about 4.0% of its RM230m market capitalisation. That's a low proportion, so we figure the company would be able to raise more cash to fund growth, with a little dilution, or even to simply borrow some money.
How Risky Is Yew Lee Pacific Group Berhad's Cash Burn Situation?
It may already be apparent to you that we're relatively comfortable with the way Yew Lee Pacific Group Berhad is burning through its cash. For example, we think its cash runway suggests that the company is on a good path. Although its falling revenue does give us reason for pause, the other metrics we discussed in this article form a positive picture overall. Looking at all the measures in this article, together, we're not worried about its rate of cash burn; the company seems well on top of its medium-term spending needs. Separately, we looked at different risks affecting the company and spotted 3 warning signs for Yew Lee Pacific Group Berhad (of which 1 doesn't sit too well with us!) you should know about.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies with significant insider holdings, and this list of stocks growth stocks (according to analyst forecasts)
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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.
