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Cash to monthly cash expenses ratio

TearLab Corp. is a health care company that specializes in developing diagnostic devices for eye disease. TearLab reported the following data (in thousands) for three recent years: Real World FAI For Years Ended December 31 Year 3 Year 2 Year 1 $ 13,838 $ 16,338 $ 37,778 (23,703) (18,172) (13,234) Cash and cash equivalents Net cash flows from operations 1. Determine the monthly cash expenses for Year 3. Year 2. and Year 1. Round to one decimal place. 2. Determine the ratio of cash to monthly cash expenses as of December 31 for Year 3. Year 2, and Year 1. Round to one decimal place. Based on (1) and (2)..comment on TearLab's ratio of cash to monthly operating expenses for Year 3, Year 2, and Year L

Answer 1

1. Monthly cash expenses = negative cash flow from operations/12

	Year 3	Year 2	Year 1
Negative cash flow from operations	23,703	18,172	13,234
Monthly cash expenses:
Year 3 = 23703/12	1,975.3
Year 2 = 18172/12		1,514.3
Year 1 = 13234/12			1,102.8

Thus monthly cash expense of year 3 = 1,975.3. Of year 2 = 1,514.3 and of year 1 = 1,102.8

2. Ratio of cash to monthly cash expense = cash as of year end/monthly cash expense

		Year 3	Year 2	Year 1
a	cash as of year end	13,838	16,338	37,778
b	Monthly cash expenses	1,975.3	1,514.3	1,102.8
c = a/b	Cash to monthly cash expenses	7.0	10.8	34.3
	(in months)

Thus the ratio is 7.0 months for year 3, 10.8 months for year 2 and 34.3 months for year 1.

The proceeding computations indicate that the company had 34.3 months of cash available as of December 31. Year 1. During year 2 the company's monthly cash expenses (cash burn) increased to $1,514.3 from $1,102.8 in year 1. The result is that the company had 10.8 months of cash with which to operate. During year 3 the company's monthly cash expenses further increased to $1,975.3. As a result at the end of year 3 the company had 7.0 months of cash with which to continue to operate. To continue operations beyond 7 months the company will have to raise additional financing from its owners or will have to issue debt.