Trailing twelve-month data shows us that Darien Business Development Corp’s (CVE:DBD.H) earnings loss has accumulated to -CA$92.50k. Although some investors expected this, their belief in the path to profitability for Darien Business Development may be wavering. A crucial question to bear in mind when you’re an investor of an unprofitable business, is whether the company will have to raise more capital in the near future. This is because new equity from additional capital raising can thin out the value of current shareholders’ stake in the company. Given that Darien Business Development is spending more money than it earns, it will need to fund its expenses via external sources of capital. Darien Business Development may need to come to market again, but the question is, when? Below, I’ve analysed the most recent financial data to help answer this question. See our latest analysis for Darien Business Development
What is cash burn?
Darien Business Development currently has CA$282.55k in the bank, with negative cash flows from operations of -CA$152.47k. The biggest threat facing Darien Business Development’s investor is the company going out of business when it runs out of money and cannot raise any more capital. Darien Business Development operates in the alternative carriers industry, which delivered positive earnings in the past year. This means, on average, its industry peers are profitable. Darien Business Development runs the risk of running down its cash supply too fast, or falling behind its profitable peers by investing too little.
When will Darien Business Development need to raise more cash?
Opex, or operational expenses, are the necessary costs Darien Business Development must pay to keep the business running every day. For the purpose of this calculation I’ve only accounted for sales, general and admin (SG&A) expenses, and R&D expenses incurred within this year. Opex declined by 25.00% over the past year, which could be an indication of Darien Business Development putting the brakes on ramping up high growth. If opex is maintained at the current level of CA$72.62k, then given the current level of cash in the bank, Darien Business Development will not need to come to market any time within the next three years. Even though this is analysis is fairly basic, and Darien Business Development still can cut its overhead further, or open a new line of credit instead of issuing new equity shares, the outcome of this analysis still gives us an idea of the company’s timeline and when things will have to start changing, since its current operation is unsustainable.
Next Steps:Investors shouldn’t expect Darien Business Development to come to market anytime soon, according to the outcome of our analysis. This cash burn analysis should give you some colour on the company’s cash position, however, keep in mind there are other non-operational expenses which we have not incorporated. Now that we’ve accounted for opex growth, you should also look at expected revenue growth in order to gauge when the company may become breakeven. I admit this is a fairly basic analysis for DBD.H’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Darien Business Development to get a more holistic view of the company by looking at:
- Historical Performance: What has DBD.H’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Darien Business Development’s board and the CEO’s back ground.
- Other High-Performing Stocks: If you believe you should cushion your portfolio with something less risky, scroll through our free list of these great stocks here.