We Think Grand Central Enterprises Bhd (KLSE:GCE) Can Afford To Drive Business Growth
Just because a business does not make any money, does not mean that the stock will go down. 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.
Given this risk, we thought we'd take a look at whether Grand Central Enterprises Bhd (KLSE:GCE) shareholders should 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). We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.
See our latest analysis for Grand Central Enterprises Bhd
How Long Is Grand Central Enterprises Bhd's Cash Runway?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. In March 2024, Grand Central Enterprises Bhd had RM44m in cash, and was debt-free. In the last year, its cash burn was RM6.8m. So it had a cash runway of about 6.5 years from March 2024. Even though this is but one measure of the company's cash burn, the thought of such a long cash runway warms our bellies in a comforting way. Depicted below, you can see how its cash holdings have changed over time.
Is Grand Central Enterprises Bhd's Revenue Growing?
Given that Grand Central Enterprises Bhd 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. As it happens, operating revenue has been pretty flat over the last year. In reality, this article only makes a short study of the company's growth data. You can take a look at how Grand Central Enterprises Bhd has developed its business over time by checking this visualization of its revenue and earnings history.
How Easily Can Grand Central Enterprises Bhd Raise Cash?
Given its problematic fall in revenue, Grand Central Enterprises Bhd shareholders should consider how the company could 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 listed company to raise more money for its business. Commonly, a business will sell new shares in itself to raise cash and drive 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.
Grand Central Enterprises Bhd has a market capitalisation of RM97m and burnt through RM6.8m last year, which is 7.0% of the company's market value. 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 Grand Central Enterprises Bhd's Cash Burn Situation?
As you can probably tell by now, we're not too worried about Grand Central Enterprises Bhd's cash burn. For example, we think its cash runway suggests that the company is on a good path. While its falling revenue wasn't great, the other factors mentioned in this article more than make up for weakness on that measure. 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. Taking a deeper dive, we've spotted 2 warning signs for Grand Central Enterprises Bhd you should be aware of, and 1 of them is concerning.
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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.
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