Trailing twelve-month data shows us that HMG/Courtland Properties Inc’s (AMEX:HMG) earnings loss has accumulated to -US$314.22K. Although some investors expected this, their belief in the path to profitability for HMG/Courtland Properties may be wavering. 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. Additional cash raising may dilute the value of your shares, and since HMG/Courtland Properties is currently burning more cash than it is making, it’s likely the business will need funding for future growth. Looking at HMG/Courtland Properties’s latest financial data, I will gauge when the company may run out of cash and need to raise more money. Check out our latest analysis for HMG/Courtland Properties
What is cash burn?
HMG/Courtland Properties currently has US$9.77M in the bank, with negative cash flows from operations of -US$788.12K. Since it is spending more money than it makes, the business is “burning” through its cash to run its day-to-day operations. The measure of how fast HMG/Courtland Properties 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. HMG/Courtland Properties operates in the retail reits industry, which on average generates a positive earnings per share, meaning the majority of its peers are profitable. HMG/Courtland Properties 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 HMG/Courtland Properties need to raise more cash?
HMG/Courtland Properties 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 HMG/Courtland Properties’s case, its opex fell by 5.40% last year, which may signal the company moving towards a more sustainable level of expenses. If opex is maintained at the current level of US$1.18M, then given the current level of cash in the bank, HMG/Courtland Properties will not need to come to market any time within the next three years. Although this is a relatively simplistic calculation, and HMG/Courtland Properties may continue to reduce its costs further 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:HMG/Courtland Properties’s declining opex growth isn’t a good thing or a bad thing. It merely means the company will run down its cash reserves more slowly but also reinvest less in the business. Although we haven’t accounted for all possible expenses for the company, on a high level, we believe the company doesn’t have an immediate cash problem based on this cash burn analysis. In addition to this analysis, I suggest you take a look at their expected revenue growth to determine the timing of future profitability as well. Keep in mind I haven’t considered other factors such as how HMG is expected to perform in the future. I suggest you continue to research HMG/Courtland Properties to get a more holistic view of the company by looking at:
- Historical Performance: What has HMG’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 HMG/Courtland Properties’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.