Clontarf Energy plc (AIM:CLON) announced a loss of -£0.22M in its most recent earnings update. Although some investors expected this, their belief in the path to profitability for CLON 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? Today I’ve examined CLON’s financial data to roughly assess when the company may need to raise new capital. Check out our latest analysis for Clontarf Energy

What is cash burn?

CLON currently has £0.60M in the bank, with negative cash flows from operations of -£0.16M. The biggest threat facing CLON’s investor is the company going out of business when it runs out of money and cannot raise any more capital. Furthermore, it is not uncommon to find loss-makers in an industry such as energy. The activities of these companies tend to be project-driven, which generates lumpy cash flows, meaning the business can be loss-making for a period of time while it invests heavily in a new project.

When will CLON need to raise more cash?

In CLON’s case, its opex fell by 25.97% last year, which may signal the company moving towards a more sustainable level of expenses. But, if the company maintains its opex at the current level of £0.2M, it will still come to market within the next 2.7 years. Although this is a relatively simplistic calculation, and CLON may continue to reduce its costs further 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.

What this means for you:

Are you a shareholder? Investors shouldn’t expect CLON to come to market anytime soon, according to the outcome of our analysis. This cash burn analysis should give you some colour on CLON’s cash position, however, keep in mind there are other non-operational expenses which we have not incorporated. Opex is only one side of the coin. I recommend also looking at CLON’s revenues in order to forecast when the company will become breakeven and start producing profits for shareholders.

Are you a potential investor? Given that CLON’s opex level is declining year on year, there’s plenty of cash runway for the company, meaning that there’s no urgent need for CLON to raise further cash. This means that, if you’re confident in the outlook of the company, and believe the market has not fully priced in this growth, there’s no immediate advantage in waiting to invest. Make sure you consider all the company’s fundamentals and have a strong investment case before you dive in!