When Will Loss-Maker Le Tanneur & Cie (EPA:LTAN) Need More Cash?

Trailing twelve-month data shows us that Le Tanneur & Cie's (ENXTPA:LTAN) earnings loss has accumulated to -€1.72M. Although some investors expected this, their belief in the path to profitability for Le Tanneur & Cie 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. Cash is crucial to run a business, and if a company burns through its reserves fast, it will need to come back to market for additional capital raising. This may not always be on their own terms, which could hurt current shareholders if the new deal lowers the value of their shares. Looking at Le Tanneur & Cie’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 Le Tanneur & Cie

What is cash burn?

Le Tanneur & Cie’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 -€938.00K, Le Tanneur & Cie is chipping away at its €1.69M cash reserves in order to run its business. The measure of how fast Le Tanneur & Cie goes through its cash reserves over time is called 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. Le Tanneur & Cie operates in the apparel, accessories and luxury goods industry, which delivered positive earnings in the past year. This means, on average, its industry peers operating are profitable. Le Tanneur & Cie runs the risk of running down its cash supply too fast, or falling behind its profitable peers by investing too little.

When will Le Tanneur & Cie need to raise more cash?

Operational expenses, or opex for short, are the bare minimum expenses for Le Tanneur & Cie to continue its operations. In this case I've only accounted for sales, general and admin (SG&A) expenses, and basic R&D expenses incurred within this year. In Le Tanneur & Cie’s case, its opex fell by 5.56% last year, which may signal the company moving towards a more sustainable level of expenses. However, this cost-reduction initiative is still not enough. Given the level of cash left in the bank, if Le Tanneur & Cie maintained its opex level of €21.31M, it will still run out of cash within the next couples of months. Even though this is analysis is fairly basic, and Le Tanneur & Cie still can cut its overhead further, or raise debt capital instead of coming to equity markets, the analysis still helps us understand how sustainable the Le Tanneur & Cie’s operation is, and when things may have to change.

Next Steps:

Loss-making companies are a risky play, even those that are reducing their opex over time. Though, this shouldn’t discourage you from considering entering the stock in the future. The outcome of my analysis suggests that even if the company maintains this negative rate of opex growth, it will run out of cash within the year. 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 LTAN has company-specific issues impacting its cash management decisions. I recommend you continue to research Le Tanneur & Cie to get a better picture of the company by looking at:

1. Historical Performance: What has LTAN'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.
2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Le Tanneur & Cie’s board and the CEO’s back ground.
3. 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.

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.

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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.