Does Integumen Plc (LON:SKIN) Have Enough Money Left To Grow?

As the UK£1.67M market cap Integumen Plc (AIM:SKIN) 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. 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. Integumen 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. Check out our latest analysis for Integumen

What is cash burn?

Integumen currently has UK£511.94K in the bank, with negative cash flows from operations of -UK£2.60M. 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 Integumen goes through its cash reserves over time is called the cash burn rate. The most significant threat facing investor is the company going out of business when it runs out of money and cannot raise any more capital. Integumen operates in the personal products industry, which on average generates a positive earnings per share, meaning the majority of its peers are profitable. Integumen 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.

When will Integumen need to raise more cash?

Operational expenses, or opex for short, are the bare minimum expenses for Integumen 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. Over the last twelve months, opex (excluding one-offs) increased by 61.39%, which is rather substantial. This means that, if Integumen continues to grow its opex at this rate, given how much money it currently has in the bank, it will actually need to raise capital again in within the next 6 months! Furthermore, even if Integumen kept its opex level at the current UK£1.10M, it will still be coming to market in the next couple of months. Although this is a relatively simplistic calculation, and Integumen may reduce its costs or raise debt capital instead of coming to equity markets, 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 Integumen, 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. This suggests an opportunity to enter into the stock, potentially at an attractive price, should Integumen come to market to fund its growth. This is only a rough assessment of financial health, and I'm sure SKIN has company-specific issues impacting its cash management decisions. I suggest you continue to research Integumen to get a better picture of the company by looking at:

1. Historical Performance: What has SKIN'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 Integumen’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.