Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?
So, the natural question for HLT Global Berhad (KLSE:HLT) shareholders is whether they should be concerned by its rate of 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). The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.
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How Long Is HLT Global Berhad's Cash Runway?
A cash runway is defined as the length of time it would take a company to run out of money if it kept spending at its current rate of cash burn. HLT Global Berhad has such a small amount of debt that we'll set it aside, and focus on the RM42m in cash it held at June 2023. In the last year, its cash burn was RM34m. That means it had a cash runway of around 15 months as of June 2023. That's not too bad, but it's fair to say the end of the cash runway is in sight, unless cash burn reduces drastically. The image below shows how its cash balance has been changing over the last few years.
Is HLT Global Berhad's Revenue Growing?
We're hesitant to extrapolate on the recent trend to assess its cash burn, because HLT Global Berhad actually had positive free cash flow last year, so operating revenue growth is probably our best bet to measure, right now. The harsh truth is that operating revenue dropped 54% in the last year, which is quite problematic for a cash burning company. In reality, this article only makes a short study of the company's growth data. You can take a look at how HLT Global Berhad has developed its business over time by checking this visualization of its revenue and earnings history.
Can HLT Global Berhad Raise More Cash Easily?
Given its problematic fall in revenue, HLT Global Berhad 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. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund 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.