Trailing twelve-month data shows us that Aeeris Limited’s (ASX:AER) earnings loss has accumulated to -AU$1.84M. Although some investors expected this, their belief in the path to profitability for Aeeris may be wavering. 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 Aeeris is currently burning more cash than it is making, it’s likely the business will need funding for future growth. Looking at Aeeris’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 Aeeris
What is cash burn?
Aeeris’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 -AU$247.56K, Aeeris is chipping away at its AU$1.04M cash reserves in order to run its business. How fast Aeeris runs down its cash supply over time is known as 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. Not surprisingly, it is more common to find unprofitable companies in the high-growth tech industry. The industry is highly competitive, with companies racing to invest in innovation at the risk of burning through its cash too fast.
When will Aeeris need to raise more cash?
Opex, or operational expenses, are the necessary costs Aeeris 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 Aeeris putting the brakes on ramping up high growth. If Aeeris kept its opex level at AU$9.87K, it may not need to raise capital for another couple of years. Even though this is analysis is fairly basic, and Aeeris still can cut its overhead further, or raise debt capital instead of coming to equity markets, 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 can breathe easy knowing that Aeeris 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 the company doesn’t have an immediate cash problem based on this cash burn analysis. Opex is only one side of the coin. I recommend also looking at revenues in order to forecast when the company will become breakeven and start producing profits for shareholders. Keep in mind I haven’t considered other factors such as how AER is expected to perform in the future. I suggest you continue to research Aeeris to get a better picture of the company by looking at:
- Valuation: What is AER worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether AER is currently mispriced by the market.
- Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Aeeris’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.