Bioxyne Limited (ASX:BXN) continues its loss-making streak, announcing negative earnings for its latest financial year ending. A crucial question to bear in mind when you’re an investor of an unprofitable business, is whether the company will have to raise more capital in the near future. This is because new equity from additional capital raising can thin out the value of current shareholders’ stake in the company. Given that Bioxyne is spending more money than it earns, it will need to fund its expenses via external sources of capital. Bioxyne may need to come to market again, but the question is, when? Below, I’ve analysed the most recent financial data to help answer this question.
What is cash burn?
With a negative free cash flow of -AU$1.5m, Bioxyne is chipping away at its AU$1.8m cash reserves in order to run its business. The biggest threat facing Bioxyne investors is the company going out of business when it runs out of money and cannot raise any more capital. Bioxyne operates in the personal products industry, which delivered positive earnings in the past year. This means, on average, its industry peers are profitable. Bioxyne runs the risk of running down its cash supply too fast, or falling behind its profitable peers by investing too little.
When will Bioxyne need to raise more cash?
When negative, free cash flow (which I define as cash from operations minus fixed capital investment) can be an effective measure of how much Bioxyne has to spend each year in order to keep its business running.
In Bioxyne’s case, its cash outflows fell by 74% last year, which may signal the company moving towards a more sustainable level of expenses. Though, if the company kept its cash burn level at -AU$1.5m, it may not need to raise capital for another 1.2 years. Even though this is analysis is fairly basic, and Bioxyne still can cut its overhead further, or open a new line of credit instead of issuing new shares, this analysis still helps us understand how sustainable the Bioxyne operation is, and when things may have to change.
This analysis isn’t meant to deter you from Bioxyne, but rather, to help you better understand the risks involved investing in loss-making companies. Now you know that even if the company was to continue to shrink its cash burn at this rate, it will not be able to sustain its operations given the current level of cash reserves. This may lead to share price pressure in the near term, should Bioxyne be forced to raise capital to fund its growth. This is only a rough assessment of financial health, and BXN likely also has company-specific issues impacting its cash management decisions. I suggest you continue to research Bioxyne to get a better picture of the company by looking at:
- Historical Performance: What has BXN'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 Bioxyne’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.
NB: Figures in this article are calculated using data from the trailing twelve months from 30 June 2019. 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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