Can the company break even next quarter?
A calculation:
Operating Income = Sales-Cost of sales- R&D-SA
R&D = Research and development expenses
SA = Selling, general and administrative expenses
For the last quarter (Q3) Cost of sales were 25,63% of sales, R&D was 1 785 383 , SA was 82,35 % of sales.
Clearly the Operating Income can never be 0 or greater whatever the sales are. 25,63% are very realistic for the cost of sales. So there must be a decrease of the % of the SA and this is quite possible. If we take the same increase in sales then the increase in the last quarter we get a sales of 5,17+(5,17-3,34)=7 M for Q4. I think this is a minimum.
Now assuming that R&D will be 1 8000 000 (R&D costs do not change very much) and the same % for the cost of sales (a bit too high probably) let's calculate the % of sales for SA to break even:
0= 7-0,2563x7-1,8-(Px7)/100 P= % of sales for selling, general and administrative expenses
After an easy calculation we get P= 48,66%.
I think that this is to low. P was 114,97% for Q2 and 82,35% for Q3. P=63% seems to me to be realistic.
Let's now calculate the sales when P=63%
0=Sales-0,2563xSales-1,8-0,63xSales
After another easy calculation we get Sales= 1,8/0,1137 = 15,83 M.
Clearly this is too high. To break even the co must increase sales AND reduce the SA/sales ratio. They shall do both but I think not enough to break even next quarter. Sure, we can define the break even instead of operating income = 0 by net income = 0 and in this case we have an interest income of about 400 000 and than the break even figure for the sales is 12,31 M and that is still to high.
There were huge successes on the reimbursement front last quarter and manufacturing was improved. But to reach 12,31 M of sales they must increase sales and manufacturing by a factor of nearly 2,4 for the next quarter. In my view this is not possible. I think that because of the success on the reimbursement front sales should be higher than 7 M but certainly higher than 9 M. Sales increase is not so fast as I supposed after the Q2 results.
This is a good co and share price should go to 40 but I think we must show some patience.
See you later |
