Dilution Ahead For Orzel Spolka Akcyjna (WSE:ORL) Shareholders?

As the ZŁ2.92M market cap Orzel Spolka Akcyjna (WSE:ORL) 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. This is because new equity from additional capital raising can thin out the value of current shareholders’ stake in the company. Given that Orzel Spolka Akcyjna is spending more money than it earns, it will need to fund its expenses via external sources of capital. Orzel Spolka Akcyjna 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. View our latest analysis for Orzel Spolka Akcyjna

What is cash burn?

Orzel Spolka Akcyjna currently has ZŁ86.10K in the bank, with negative cash flows from operations of -ZŁ762.17K. Since it is spending more money than it makes, the business is “burning” through its cash to run its day-to-day operations. How fast Orzel Spolka Akcyjna runs down its cash supply over time is known as 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. Orzel Spolka Akcyjna operates in the commodity chemicals industry, which delivered positive earnings in the past year. This means, on average, its industry peers operating are profitable. Orzel Spolka Akcyjna runs the risk of running down its cash supply too fast, or falling behind its profitable peers by investing too little.

WSE:ORL Income Statement Apr 27th 18
WSE:ORL Income Statement Apr 27th 18

When will Orzel Spolka Akcyjna need to raise more cash?

Orzel Spolka Akcyjna 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. In Orzel Spolka Akcyjna’s case, its opex fell by 19.05% last year, which may signal the company moving towards a more sustainable level of expenses. However, even with declining costs, the current level of cash is not enough to sustain Orzel Spolka Akcyjna’s operations and the company may need to come to market to raise more capital within the year. Although this is a relatively simplistic calculation, and Orzel Spolka Akcyjna may continue to reduce its costs further or raise debt capital instead of coming to equity markets, the analysis still helps us understand how sustainable the Orzel Spolka Akcyjna’s operation is, and when things may have to change.

Next Steps:

The risks involved in investing in loss-making Orzel Spolka Akcyjna means you should think twice before diving into the stock. However, this should not prevent you from further researching it as an investment potential. 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 Orzel Spolka Akcyjna come to market to fund its operations. Keep in mind I haven’t considered other factors such as how ORL is expected to perform in the future. I suggest you continue to research Orzel Spolka Akcyjna to get a better picture of the company by looking at:
  1. Valuation: What is ORL worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether ORL is currently mispriced by the market.
  2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Orzel Spolka Akcyjna’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 31 December 2017. This may not be consistent with full year annual report figures. Operating expenses include only SG&A and one-year R&D.