Should You Worry About CoAssets Limited (ASX:CA8) Cash Runway?

CoAssets Limited (ASX:CA8) continues its loss-making streak, announcing negative earnings for its latest financial year ending. 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. Additional cash raising may dilute the value of your shares, and since CoAssets is currently burning more cash than it is making, it’s likely the business will need funding for future growth. CoAssets 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 CoAssets

What is cash burn?

CoAssets currently has S$2.10M in the bank, with negative cash flows from operations of -S$5.89M. 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 CoAssets 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. 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.

ASX:CA8 Income Statement Feb 17th 18
ASX:CA8 Income Statement Feb 17th 18

When will CoAssets need to raise more cash?

CoAssets 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. Opex (excluding one-offs) grew by 35.28% over the past year, which is rather substantial. My cash burn analysis suggests that CoAssets has a cash runway of 3 years, given its current level of cash holdings. This may mean it will be coming to market sooner than shareholders would like. However, if the company maintains its opex at the current level of S$582.90K, then CoAssets will not need to come to market any time within the next three years. Although this is a relatively simplistic calculation, and CoAssets may reduce its costs or open a new line of credit instead of issuing new equity shares, the 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 CoAssets, but rather, to help you better understand the risks involved investing in loss-making companies. The outcome of my analysis suggests that if the company maintains the rate of opex growth, it will run out of cash in the upcoming years. An opportunity may exist for you to enter into the stock at an attractive price, should CoAssets come to market to fund its operations. I admit this is a fairly basic analysis for CA8’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research CoAssets 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.