Dilution Ahead For Moxian Inc (NASDAQ:MOXC) Shareholders?

Trailing twelve-month data shows us that Moxian Inc's (NASDAQ:MOXC) earnings loss has accumulated to -US$12.77M. Although some investors expected this, their belief in the path to profitability for Moxian 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. Today I’ve examined Moxian’s financial data from its most recent earnings update, to roughly assess when the company may need to raise new capital. Check out our latest analysis for Moxian

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, Moxian has US$83.76K in cash holdings and producing negative cash flows from its day-to-day activities of -US$6.81M. The measure of how fast Moxian 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 exciting, fast-growing tech industry often face this problem, and Moxian 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 Moxian need to raise more cash?

Opex, or operational expenses, are the necessary costs Moxian 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 50.12% over the past year, which is rather substantial. Not surprisingly, if Moxian continues to ramp up expenditure at this rate for the upcoming year, it’ll likely need to come to market within the next few months, given the its current level of cash reserves. Moreover, even if Moxian kept its opex level at US$8.86M, it will still have to come to market within the next year. Even though this is analysis is fairly basic, and Moxian 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 helps us understand how sustainable the Moxian’s operation is, and when things may have to change.

Next Steps:

The risks involved in investing in loss-making Moxian 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 cash burn analysis result indicates a cash constraint for the company, due to its high opex growth and its level of cash reserves. This suggests an opportunity to enter into the stock, potentially at an attractive price, should Moxian come to market to fund its growth. Keep in mind I haven't considered other factors such as how MOXC is expected to perform in the future. I suggest you continue to research Moxian to get a more holistic view of the company by looking at:

1. Historical Performance: What has MOXC'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 Moxian’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 31 December 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.