Will Public Joint Stock Company United Aircraft Corporation (MCX:UNAC) Need To Raise More Money?

As the RUРУБ277.32B market cap Public Joint Stock Company United Aircraft Corporation (MISX:UNAC) released another year of negative earnings, investors may be on edge waiting for breakeven. 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. This is because new equity from additional capital raising can thin out the value of current shareholders’ stake in the company. Given that United Aircraft is spending more money than it earns, it will need to fund its expenses via external sources of capital. Today I’ve examined United Aircraft’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 United Aircraft

What is cash burn?

United Aircraft’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 -RUРУБ5.82B, United Aircraft is chipping away at its RUРУБ173.15B cash reserves in order to run its business. The measure of how fast United Aircraft goes through its cash reserves over time is called 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. United Aircraft operates in the aerospace and defense industry, which on average generates a positive earnings per share, meaning the majority of its peers are profitable. United Aircraft 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 United Aircraft need to raise more cash?

Operational expenses, or opex for short, are the bare minimum expenses for United Aircraft 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 the past year, opex (excluding one-offs) rose by 17.57%, which is rather substantial. This means that, if United Aircraft continues to grow its opex at this rate, given how much money it currently has in the bank, it will need to raise capital again in 2.3 years. Furthermore, even if United Aircraft kept its opex level at the current RUРУБ68.73B, it will still be coming to market in about 2.5 years. Even though this is analysis is fairly basic, and United Aircraft still can cut its overhead in the near future, or raise debt capital instead of coming to equity markets, the outcome of this 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 United Aircraft, but rather, to help you better understand the risks involved investing in loss-making companies. Now you know that if the company was to continue to grow its opex at a double-digit rate, it will not be able to sustain its operations given the current level of cash reserves. This suggests an opportunity to enter into the stock, potentially at an attractive price, should United Aircraft come to market to fund its growth. This is only a rough assessment of financial health, and I'm sure UNAC has company-specific issues impacting its cash management decisions. I suggest you continue to research United Aircraft to get a better picture of the company by looking at:

1. Historical Performance: What has UNAC'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 United Aircraft’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.