Trailing twelve-month data shows us that China 33 Media Group Limited’s (SEHK:8087) earnings loss has accumulated to -CN¥64.96M. Although some investors expected this, their belief in the path to profitability for China 33 Media Group 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? 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. China 33 Media Group 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 China 33 Media Group
What is cash burn?
China 33 Media Group currently has CN¥31.96M in the bank, with negative cash flows from operations of -CN¥197.25M. Since it is spending more money than it makes, the business is “burning” through its cash to run its day-to-day operations. The cash burn rate refers to the rate at which the company uses up its supply of cash over time. 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. China 33 Media Group operates in the publishing industry, which has an average EPS of CN¥0.21, meaning the majority of its peers are profitable. China 33 Media Group 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 China 33 Media Group need to raise more cash?
Opex, or operational expenses, are the necessary costs China 33 Media Group 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. In China 33 Media Group’s case, its opex fell by 22.72% 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 China 33 Media Group maintained its opex level of CN¥48.22M, it will still run out of cash within the next couples of months. Even though this is analysis is fairly basic, and China 33 Media Group still can cut its overhead further, 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 China 33 Media Group, 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 current level of cash reserves. An opportunity may exist for you to enter into the stock at an attractive price, should China 33 Media Group come to market to fund its operations. This is only a rough assessment of financial health, and I’m sure 8087 has company-specific issues impacting its cash management decisions. You should continue to research China 33 Media Group to get a more holistic view of the company by looking at:
- 1. Historical Performance: What has 8087’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 China 33 Media Group’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.