Trailing twelve-month data shows us that ENDRA Life Sciences Inc’s (NASDAQ:NDRA) earnings loss has accumulated to -US$7.46M. Although some investors expected this, their belief in the path to profitability for ENDRA Life Sciences may be wavering. 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. 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. Today I’ve examined ENDRA Life Sciences’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 ENDRA Life Sciences
What is cash burn?
Cash burn is when a loss-making company spends its equity to fund its expenses before making money from its day-to-day business. Currently, ENDRA Life Sciences has US$3.15M in cash holdings and producing negative cash flows from its day-to-day activities of -US$5.52M. The measure of how fast ENDRA Life Sciences 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. Unprofitable companies operating in the high-growth healthcare industry often face this problem, and ENDRA Life Sciences is no exception. The industry is highly competitive, with companies racing to invest in innovation at the risk of burning through its cash too fast.
When will ENDRA Life Sciences need to raise more cash?
Opex, or operational expenses, are the necessary costs ENDRA Life Sciences 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. Opex (excluding one-offs) grew by 25.00% over the past year, which is rather substantial. My cash burn analysis suggests that, if ENDRA Life Sciences continues to spend its cash reserves at this current high rate, it’ll have to raise capital within the next 6 months, which may be a surprise to some shareholders. Moreover, even if ENDRA Life Sciences kept its opex level at US$7.29M, it will still have to come to market within the next year. Even though this is analysis is fairly basic, and ENDRA Life Sciences still can cut its overhead in the near future, or open a new line of credit instead of issuing new equity shares, the outcome of this analysis still helps us understand how sustainable the ENDRA Life Sciences’s operation is, and when things may have to change.
Next Steps:This analysis isn’t meant to deter you from ENDRA Life Sciences, 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 ENDRA Life Sciences come to market to fund its operations. Keep in mind I haven’t considered other factors such as how NDRA is expected to perform in the future. I recommend you continue to research ENDRA Life Sciences to get a more holistic view of the company by looking at:
- Historical Performance: What has NDRA’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 ENDRA Life Sciences’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.