Should You Worry About Tinybeans Group Limited (ASX:TNY) Cash Runway?

As the AUD A$23.40M market cap Tinybeans Group Limited (ASX:TNY) released another year of negative earnings, investors may be on edge waiting for breakeven. The single most important question to ask when you’re investing in a loss-making company is – will they need to raise cash again, and if so, when? Cash is crucial to run a business, and if a company burns through its reserves fast, it will need to come back to market for additional capital raising. This may not always be on their own terms, which could hurt current shareholders if the new deal lowers the value of their shares. Looking at TNY’s latest financial data, I will gauge when the company may run out of cash and need to raise more money. See our latest analysis for TNY

What is cash burn?

TNY currently has A$5.21M in the bank, with negative cash flows from operations of -A$1.19M. Since it is spending more money than it makes, the business is “burning” through its cash to run its day-to-day operations. The cash burn rate refers to the rate at which the company uses up its supply of cash over time. The riskiest factor facing investors of TNY is the potential for the company to run out of cash without the ability to raise more money, i.e. TNY goes out of business. Furthermore, it is not uncommon to find loss-makers in an industry such as tech. These businesses operate in a highly competitive environment and face running down its cash holdings too fast in order to keep up with innovation.

ASX:TNY Income Statement Nov 2nd 17
ASX:TNY Income Statement Nov 2nd 17

When will TNY need to raise more cash?

Operational expenses, or opex for short, are the bare minimum expenses for TNY to continue its operations. In this case I’ve only accounted for sales, general and admin (SG&A) expenses, and basic R&D expenses incurred within this year. In the past year, opex (excluding one-offs) rose by 43.37%, which is considerably high. Though, my cash burn analysis suggests that TNY has a cash runway of over three years, with its current level of cash holdings. This means the company’s expenditure can continue to grow at the same rate without having to come to market anytime soon. Although this is a relatively simplistic calculation, and TNY may reduce its costs or open a new line of credit instead of issuing new equity shares, the analysis still helps us understand how sustainable the TNY’s operation is, and when things may have to change.

What this means for you:

Are you a shareholder? Although TNY’s opex is growing at a double-digit rate, investors can breathe easy knowing it probably won’t be coming to market any time soon. Although we haven’t accounted for all possible expenses for the company, on a high level, we believe TNY doesn’t have an immediate cash problem based on this cash burn analysis. However, this analysis still doesn’t tell us when TNY will become breakeven. I suggest you take a look at their expected revenue growth to determine the timing of future profitability as well.

Are you a potential investor? The cash burn analysis outcome indicates that TNY may not need to raise further equity capital any time soon. So, if you’re waiting to participate in an upcoming equity raise, there’s no immediate cash-oriented catalyst for TNY to issue more shares. In other words, if you like the company, there’s no benefit to waiting around in order to invest. However, you should make sure you consider all the company’s fundamentals and have a strong investment case before you dive in!

Good management manages cash well – have a peek at TNY’s CEO experience and the tenure of the board here. If risky loss-making stocks do not appeal to you, see my list of highly profitable companies to add to your portfolio..

NB: Figures in this article are calculated using data from the last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. This may not be consistent with full year annual report figures. Operating expenses include only SG&A and one-year R&D.