The Gruden Group Limited (ASX:GGL) continues its loss-making streak, announcing a -$6.49M earnings for its latest financial year ending. Cash is crucial to run a business, and if a company burns through its reserves fast, it will need to come back to market for additional capital raising. This may not always be on their own terms, which could hurt current shareholders if the new deal lowers the value of their shares. Below, I’ve analysed the most recent financial data to help answer this question. See our latest analysis for GGL

What is cash burn?

With a negative operating cash flow of -$1.97M, GGL is chipping away at its $2.61M cash reserves in order to run its business. The biggest threat facing GGL’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 tech. The industry is highly competitive, with companies racing to invest in innovation at the risk of burning through its cash too fast.

When will GGL need to raise more cash?

Opex (excluding one-offs) grew by 2.66% over the past year, which is relatively reasonable for a small-cap company. However, if GGL continues to grow its opex at this rate, given how much money it currently has in the bank, it will actually need to raise capital again in within the next 5 months! Furthermore, even if GGL kept its opex level at the current $6.7M, it will still be coming to market in the next couple of months. Even though this is analysis is fairly basic, and GGL still can cut its overhead in the near future, or open a new line of credit instead of issuing new equity shares, the 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? The outcome of this analysis should shed some light on GGL’s cash situation and the risks you may or may not have been aware of as a shareholder of the company. 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.

Are you a potential investor? The risks involved in investing in loss-making GGL means you should think twice before diving into the stock. However, this should not prevent you from further researching it as an investment potential. The outcome of my analysis suggests that if GGL maintains the rate of opex growth, it will run out of cash within the year. This suggests an opportunity to enter into the stock, potentially at an attractive price, should GGL come to market to fund its growth.