AMCI Acquisition Corp. (NASDAQ:AMCI) 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. This is because new equity from additional capital raising can thin out the value of current shareholders’ stake in the company. Given that AMCI Acquisition is spending more money than it earns, it will need to fund its expenses via external sources of capital. Looking at AMCI Acquisition’s latest financial data, I will estimate when the company may run out of cash and need to raise more money.
View our latest analysis for AMCI Acquisition
What is cash burn?
Currently, AMCI Acquisition has US$886k in cash holdings and producing negative free cash flow of -US$228.2k. The biggest threat facing AMCI Acquisition investors is the company going out of business when it runs out of money and cannot raise any more capital. AMCI Acquisition operates in the asset management and custody banks industry, which on average generates a positive earnings per share, meaning the majority of its peers are profitable. AMCI Acquisition faces the trade-off between running the risk of depleting its cash reserves too fast, or risk falling behind its profitable competitors by investing too slowly.
When will AMCI Acquisition need to raise more cash?
One way to measure the cost to AMCI Acquisition of keeping the business running, is by using free cash flow (which I define as cash flow from operations minus fixed capital investment).
Even though this is analysis is fairly basic, and AMCI Acquisition still can cut its overhead in the near future, or open a new line of credit instead of issuing new shares, this analysis still helps us understand how sustainable the AMCI Acquisition operation is, and when things may have to change.
Next Steps:
This is only a rough assessment of financial health, and AMCI likely also has company-specific issues impacting its cash management decisions. I recommend you continue to research AMCI Acquisition to get a more holistic view of the company by looking at:
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Future Outlook: What are well-informed industry analysts predicting for AMCI’s future growth? Take a look at our free research report of analyst consensus for AMCI’s outlook.
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Valuation: What is AMCI worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether AMCI is currently mispriced by the market.
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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.