Trailing twelve-month data shows us that Reliv’ International Inc’s (NASDAQ:RELV) earnings loss has accumulated to -US$1.46M. Although some investors expected this, their belief in the path to profitability for Reliv’ International 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. Looking at Reliv’ International’s latest financial data, I will gauge when the company may run out of cash and need to raise more money. View our latest analysis for Reliv’ International
What is cash burn?
Reliv’ International currently has US$3.68M in the bank, with negative cash flows from operations of -US$187.40K. 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. Reliv’ International operates in the personal products industry, which delivered positive earnings in the past year. This means, on average, its industry peers operating are profitable. Reliv’ International runs the risk of running down its cash supply too fast, or falling behind its profitable peers by investing too little.
When will Reliv’ International need to raise more cash?
Opex, or operational expenses, are the necessary costs Reliv’ International 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 Reliv’ International’s case, its opex fell by 11.38% 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 Reliv’ International maintained its opex level of US$31.02M, it will still run out of cash within the next couples of months. Although this is a relatively simplistic calculation, and Reliv’ International may continue to reduce its costs further or raise debt capital instead of coming to equity markets, the outcome of this analysis still helps us understand how sustainable the Reliv’ International’s operation is, and when things may have to change.
Next Steps:The risks involved in investing in loss-making Reliv’ International 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 outcome of my analysis suggests that even if the company maintains this negative rate of opex growth, it will run out of cash within the year. The potential equity raising resulting from this means you could potentially get a better deal on the share price when the company raises capital next. Keep in mind I haven’t considered other factors such as how RELV is expected to perform in the future. I suggest you continue to research Reliv’ International to get a more holistic view of the company by looking at:
- Valuation: What is RELV 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 RELV is currently mispriced by the market.
- Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Reliv’ International’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.