How Much Money Does MyFiziq Limited (ASX:MYQ) Have Left?

As the A$78.25M market cap MyFiziq Limited (ASX:MYQ) released another year of negative earnings, investors may be on edge waiting for breakeven. 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 MyFiziq is currently burning more cash than it is making, it’s likely the business will need funding for future growth. MyFiziq 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 MyFiziq

What is cash burn?

MyFiziq’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$1.81M, MyFiziq is chipping away at its A$1.16M cash reserves in order to run its business. How fast MyFiziq runs down its cash supply over time is known as the cash burn rate. Companies with high cash burn rates can eventually turn into ashes, which makes it the biggest risk an investor in loss-making companies face. Unprofitable companies operating in the exciting, fast-growing tech industry often face this problem, and MyFiziq is no exception. These businesses operate in a highly competitive environment and face running down its cash holdings too fast in order to keep up with innovation.

When will MyFiziq need to raise more cash?

MyFiziq 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 28.68%, which is considerably high. My cash burn analysis suggests that, if MyFiziq continues to spend its cash reserves at this current high rate, it’ll have to raise capital within the next 11 months, which may be a surprise to some shareholders. This is also the case if MyFiziq maintains its opex level of A$1.34M, without growth, going forward. Even though this is analysis is fairly basic, and MyFiziq still can cut its overhead in the near future, or open a new line of credit instead of issuing new equity shares, the outcome of this analysis still helps us understand how sustainable the MyFiziq’s operation is, and when things may have to change.

What this means for you:

Are you a shareholder? MyFiziq is inherently risky due to its current cash flow position. It is loss making and it is also burning through its cash at a fast rate. The outcome of this analysis should shed some light on the company's cash situation and the risks you may or may not have been aware of as a shareholder of the company. Now that we’ve accounted for opex growth, you should also look at expected revenue growth in order to gauge when the company may become breakeven.

Are you a potential investor? This analysis isn’t meant to deter you from buying MyFiziq, but rather, to help you better understand the risks involved investing in loss-making companies. Now you know that if the company was to continue to grow its opex at a double-digit rate, it will not be able to sustain its operations given the current level of cash reserves. This suggests an opportunity to enter into the stock, potentially at an attractive price, should MyFiziq come to market to fund its growth.

Good management manages cash well – take a look at who sits on MyFiziq’s board and the CEO’s back ground and experience 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com

Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.