Trailing twelve-month data shows us that NII Holdings Inc’s (NASDAQ:NIHD) earnings loss has accumulated to -US$302.02M. Although some investors expected this, their belief in the path to profitability for NII Holdings may be wavering. Savvy investors should always reassess the situation of loss-making companies frequently, and keep informed about whether or not these businesses are in a strong cash position. Additional cash raising may dilute the value of your shares, and since NII Holdings is currently burning more cash than it is making, it’s likely the business will need funding for future growth. Looking at NII Holdings’s latest financial data, I will gauge when the company may run out of cash and need to raise more money. View our latest analysis for NII Holdings
What is cash burn?
NII Holdings currently has US$210.60M in the bank, with negative cash flows from operations of -US$87.14M. Since it is spending more money than it makes, the business is “burning” through its cash to run its day-to-day operations. The measure of how fast NII Holdings goes through its cash reserves over time is called the cash burn rate. The riskiest factor facing investors of the company is the potential for the company to run out of cash without the ability to raise more money, i.e. the company goes out of business. NII Holdings operates in the wireless telecommunication services industry, which delivered positive earnings in the past year. This means, on average, its industry peers operating are profitable. NII Holdings runs the risk of running down its cash supply too fast, or falling behind its profitable peers by investing too little.
When will NII Holdings need to raise more cash?
Opex, or operational expenses, are the necessary costs NII Holdings 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 34.33% over the past year, which could be an indication of NII Holdings putting the brakes on ramping up high growth. However, this cost-reduction initiative is still not enough. Given the level of cash left in the bank, if NII Holdings maintained its opex level of US$510.17M, it will still run out of cash within the next couples of months. Even though this is analysis is fairly basic, and NII Holdings 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:This analysis isn’t meant to deter you from NII Holdings, but rather, to help you better understand the risks involved investing in loss-making companies. Now you know that even if the company was to continue to shrink its opex at this rate, it will not be able to sustain its operations given the current level of cash reserves. The potential equity raising resulting from this means you could potentially get a better deal on the share price when the company raises capital next. This is only a rough assessment of financial health, and I’m sure NIHD has company-specific issues impacting its cash management decisions. I suggest you continue to research NII Holdings to get a better picture of the company by looking at:
- Historical Performance: What has NIHD’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 NII Holdings’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.