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Aquis Exchange Plc (LON:AQX) continues its loss-making streak, announcing negative earnings for its latest financial year ending. 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. Cash is crucial to run a business, and if a company burns through its reserves fast, it will need to raise further funds. This may not always be on good terms, which could hurt current shareholders if the new deal lowers the value of their shares. Today I’ve examined Aquis Exchange’s financial data from its most recent earnings update, to roughly assess when the company may need to raise new capital.
See our latest analysis for Aquis Exchange
What is cash burn?
With a negative free cash flow of -UK£2.0m, Aquis Exchange is chipping away at its UK£11m cash reserves in order to run its business. The riskiest factor facing investors of Aquis Exchange is the potential for the company to run out of cash without the ability to raise more money. Aquis Exchange operates in the financial exchanges and data industry, which delivered positive earnings in the past year. This means, on average, its industry peers are profitable. Aquis Exchange runs the risk of running down its cash supply too fast, or falling behind its profitable peers by investing too little.
When will Aquis Exchange 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 Aquis Exchange has to spend each year in order to keep its business running.
Over the last twelve months, free cash outflows increased by 6.3%, which is relatively appropriate for a small-cap company. According to this analysis, given the current level of cash reserves, Aquis Exchange can continue to spend at the current rate and should not need to raise further capital for a few years. Although this is a relatively simplistic calculation, and Aquis Exchange could reduce its costs or open a new line of credit instead of issuing new shares, 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:
Given Aquis Exchange’s reasonable level of cash burn growth as well as its current level of cash reserves, it seems like Aquis Exchange will not need to raise capital anytime soon. Although we haven’t incorporated for all possible expenses for the company, on a high level, it appears the company doesn’t have an immediate cash problem based on this cash burn analysis. In addition to this analysis, I suggest you take a look at their expected revenue growth to determine the timing of future profitability as well. Keep in mind I haven't considered other factors such as how AQX is expected to perform in the future. I suggest you continue to research Aquis Exchange to get a more holistic view of the company by looking at: