SAG GEST – Soluções Automóvel Globais SGPS, SA. (ENXTLS:SVA) continues its loss-making streak, announcing negative earnings for its latest financial year ending. A crucial question to bear in mind when you’re an investor of an unprofitable business, is whether the company will have to raise more capital in the near future. Additional cash raising may dilute the value of your shares, and since SAG GEST – Soluções Automóvel Globais SGPS is currently burning more cash than it is making, it’s likely the business will need funding for future growth. Today I’ve examined SAG GEST – Soluções Automóvel Globais SGPS’s financial data from its most recent earnings update, to roughly assess when the company may need to raise new capital. View our latest analysis for SAG GEST – Soluções Automóvel Globais SGPS
What is cash burn?
SAG GEST – Soluções Automóvel Globais SGPS currently has €7.59M in the bank, with negative cash flows from operations of -€23.79M. 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. Companies with high cash burn rates can eventually turn into ashes, which makes it the biggest risk an investor in loss-making companies face. SAG GEST – Soluções Automóvel Globais SGPS operates in the distributors industry, which on average generates a positive earnings per share, meaning the majority of its peers are profitable. SAG GEST – Soluções Automóvel Globais SGPS 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 SAG GEST – Soluções Automóvel Globais SGPS need to raise more cash?
Opex, or operational expenses, are the necessary costs SAG GEST – Soluções Automóvel Globais SGPS 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. Over the last twelve months, opex (excluding one-offs) increased by 5.51%, which is relatively appropriate for a small-cap company. But, if SAG GEST – Soluções Automóvel Globais SGPS continues to ramp up its opex at this rate, given how much money it currently has in the bank, it will actually need to come to market again within the next year. This is also the case if SAG GEST – Soluções Automóvel Globais SGPS maintains its opex level of €52.20M, without growth, going forward. Even though this is analysis is fairly basic, and SAG GEST – Soluções Automóvel Globais SGPS still can cut its overhead in the near future, 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 SAG GEST – Soluções Automóvel Globais SGPS, but rather, to help you better understand the risks involved investing in loss-making companies. The outcome of my analysis suggests that if the company maintains the rate of opex growth, it will run out of cash within the year. An opportunity may exist for you to enter into the stock at an attractive price, should SAG GEST – Soluções Automóvel Globais SGPS come to market to fund its operations. This is only a rough assessment of financial health, and I’m sure SVA has company-specific issues impacting its cash management decisions. I recommend you continue to research SAG GEST – Soluções Automóvel Globais SGPS to get a more holistic view of the company by looking at:
- Historical Performance: What has SVA’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.
- Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on SAG GEST – Soluções Automóvel Globais SGPS’s board and the CEO’s back ground.
- 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.