Trailing twelve-month data shows us that Altus Strategies plc's (LON:ALS) earnings loss has accumulated to -UK£1.3m. Although some investors expected this, their belief in the path to profitability for Altus Strategies 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. Selling new shares may dilute the value of existing shares on issue, and since Altus Strategies is currently burning more cash than it is making, it’s likely the business will need funding for future growth. Looking at Altus Strategies’s latest financial data, I will estimate when the company may run out of cash and need to raise more money.
See our latest analysis for Altus Strategies
What is cash burn?
Currently, Altus Strategies has UK£198k in cash holdings and producing negative free cash flow of -UK£1.8m. Companies with high cash burn rates can eventually turn into ashes, which makes it the biggest risk an investor in loss-making companies face. Furthermore, it is not uncommon to find loss-makers in an industry such as metals and mining. Although these companies can be unprofitable now, they tend to take on project-work, which can payoff sometime in the future.
When will Altus Strategies need to raise more cash?
One way to measure the cost to Altus Strategies of keeping the business running, is by using free cash flow (which I define as cash flow from operations minus fixed capital investment).
Free cash outflows declined by 40% over the past year, which could be an indication of Altus Strategies putting the brakes on ramping up high growth. However, the current level of cash is not enough to sustain Altus Strategies’s operations and the company may need to raise more capital within the year. Although this is a relatively simplistic calculation, and Altus Strategies may continue to reduce its costs further or borrow money instead of raising new equity capital, the outcome of this analysis still helps us understand how sustainable the Altus Strategies operation is, and when things may have to change.
Next Steps:
Loss-making companies are a risky play, even those that are reducing their cash burn over time. Though, this shouldn’t discourage you from considering entering the stock in the future. The cash burn analysis result indicates a cash constraint for the company, due to its current level of cash reserves. The potential equity raising resulting from this means you might be able to get shares at a lower price if the company raises capital next. Keep in mind I haven't considered other factors such as how ALS is expected to perform in the future. I recommend you continue to research Altus Strategies to get a better picture of the company by looking at: