Trailing twelve-month data shows us that Yangtze River Port and Logistics Limited’s (NASDAQ:YRIV) earnings loss has accumulated to -US$12.25M. Although some investors expected this, their belief in the path to profitability for Yangtze River Port and Logistics 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? Additional cash raising may dilute the value of your shares, and since Yangtze River Port and Logistics is currently burning more cash than it is making, it’s likely the business will need funding for future growth. Looking at Yangtze River Port and Logistics’s latest financial data, I will gauge when the company may run out of cash and need to raise more money. See our latest analysis for Yangtze River Port and Logistics
What is cash burn?
Yangtze River Port and Logistics currently has US$59.26K in the bank, with negative cash flows from operations of -US$2.06M. Since it is spending more money than it makes, the business is “burning” through its cash to run its day-to-day operations. How fast Yangtze River Port and Logistics runs down its cash supply over time is known as 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. Yangtze River Port and Logistics operates in the marine ports and services industry, which delivered positive earnings in the past year. This means, on average, its industry peers operating are profitable. Yangtze River Port and Logistics runs the risk of running down its cash supply too fast, or falling behind its profitable peers by investing too little.
When will Yangtze River Port and Logistics need to raise more cash?
Yangtze River Port and Logistics 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 the past year, opex (excluding one-offs) rose by 18.40%, which is rather substantial. Not surprisingly, if Yangtze River Port and Logistics 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. This is also the case if Yangtze River Port and Logistics maintains its opex level of US$5.08M, without growth, going forward. Although this is a relatively simplistic calculation, and Yangtze River Port and Logistics may reduce its costs or open a new line of credit instead of issuing new equity shares, 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:The risks involved in investing in loss-making Yangtze River Port and Logistics 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. 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. This is only a rough assessment of financial health, and I’m sure YRIV has company-specific issues impacting its cash management decisions. I recommend you continue to research Yangtze River Port and Logistics to get a more holistic view of the company by looking at:
- Historical Performance: What has YRIV’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 Yangtze River Port and Logistics’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.