Next Capital Raising For CYCLIQ Group Limited (ASX:CYQ)?

CYCLIQ Group Limited (ASX:CYQ) continues its loss-making streak, announcing negative earnings for its latest financial year ending. 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? Additional cash raising may dilute the value of your shares, and since CYCLIQ Group is currently burning more cash than it is making, it’s likely the business will need funding for future growth. Looking at CYCLIQ Group’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 CYCLIQ Group

What is cash burn?

CYCLIQ Group’s expenses are currently higher than the money it makes from its day-to-day operations, which means it is funding its overhead with equity capital a.k.a. its cash. With a negative operating cash flow of -A$3.34M, CYCLIQ Group is chipping away at its A$3.25M cash reserves in order to run its business. The measure of how fast CYCLIQ Group 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. CYCLIQ Group operates in the leisure products industry, which has an average EPS of A$146.83, meaning the majority of its peers are profitable. CYCLIQ Group faces the trade-off between running the risk of depleting its cash reserves too fast, or risk falling behind its profitable competitors by investing too slowly.

ASX:CYQ Income Statement Jan 30th 18
ASX:CYQ Income Statement Jan 30th 18

When will CYCLIQ Group need to raise more cash?

CYCLIQ Group has to pay its employees and other necessities such as rent and admin costs in order to keep its business running. These costs are called operational expenses, which is sometimes shortened to opex. In this calculation I’ve only included recurring sales, general and admin (SG&A) expenses, and R&D expenses occured within they year. Over the last twelve months, opex (excluding one-offs) increased by 52.25%, which is considerably high. Not surprisingly, if CYCLIQ Group continues to ramp up expenditure at this rate for the upcoming year, it’ll likely need to come to market within the next few months, given the its current level of cash reserves. This is also the case if CYCLIQ Group maintains its opex level of A$3.55M, without growth, going forward. Even though this is analysis is fairly basic, and CYCLIQ Group still can cut its overhead in the near future, or raise debt capital instead of coming to equity markets, the analysis still helps us understand how sustainable the CYCLIQ Group’s operation is, and when things may have to change.

What this means for you:

This analysis isn’t meant to deter you from CYCLIQ Group, but rather, to help you better understand the risks involved investing in loss-making companies. The cash burn analysis result indicates a cash constraint for the company, due to its high opex growth and its level of cash reserves. An opportunity may exist for you to enter into the stock at an attractive price, should CYCLIQ Group come to market to fund its operations. This is only a rough assessment of financial health, and I’m sure CYQ has company-specific issues impacting its cash management decisions. I recommend you continue to research CYCLIQ Group to get a more holistic view of the company by looking at: NB: Figures in this article are calculated using data from the trailing twelve months from 30 June 2017. This may not be consistent with full year annual report figures. Operating expenses include only SG&A and one-year R&D.