AIM:HER Income Statement Oct 3rd 17
When will HER need to raise more cash?
In HER’s case, its opex fell by 11.32% 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 HER maintained its opex level of £1.5M, it will still run out of cash within the next couples of months. Although this is a relatively simplistic calculation, and HER may continue to reduce its costs further or raise debt capital instead of coming to equity markets, the analysis still helps us understand how sustainable the HER’s operation is, and when things may have to change.
What this means for you:
Are you a shareholder? The outcome of this analysis should shed some light on HER’s cash situation and the risks you may or may not have been aware of as a shareholder of the company. Now that we’ve accounted for opex, you should also look at expected revenue growth in order to gauge when the company may become breakeven.
Are you a potential investor? The risks involved in investing in loss-making HER means you should think twice before diving into the stock. However, this should not prevent you from further researching it as an investment potential. Now you know that even if HER were to continue to shrink its opex at this rate, it will not be able to sustain its operations given the current 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.
Good management manages cash well – have a peek at HER’s CEO experience and the tenure of the board here. If risky loss-making stocks do not appeal to you, see my list of highly profitable companies to add to your portfolio..
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.