EPS Calculations
plfinthemiddle,
Though far from an expert in this area, I saw your question and thought I’d jump in.
Essentially what you are asking is, “when will we be profitable?” Is that correct? This management team has done a good job of managing costs – we have a very low number of Outstanding Shares (OS) and our burn rate is likewise manageable.
We’ll have to operate under a LOT of assumptions to figure EPS, but for our example we’ll use the following: Let’s say the number of OS is 40 million. I don’t have the exact number, although I think that's close. But that’s not critical to our example. We’ll guesstimate their current burn rate to be somewhere around $150,000 per month ($1.8 M per year). We’ll likewise guesstimate our net profit on each pound of EP to be somewhere around $10 (I think that’s on the ultra-conservatively low side, but again, it’s just being used as an example). Next we’ll start with production quantities of 50,000 lbs per month (600k lbs per year).
600k lbs * $10 = $6M per year in Sales. Subtract our burn rate of $1.8M and we’re left with $4.2M Net Income (NI). Divide NI (4.2M) by OS (40M), for an EPS of .105
Please keep in mind that all of this is very much an oversimplification of everything that goes into figuring EPS, but one thing that should be obvious to all is that, it takes very little in the way of sales to break into a profitability scenario and generate a positive EPS. Purely from a break-even standpoint, it only takes sales of 15k lbs per month (using the example above) to cover our burn rate.
When will we achieve that level? Think of it this way: Just to reach break even (again, using our example above), we "only" need to sell 715 lbs per day (715 * 21 production days per month = 15,015 lbs per month). Does that figure seem the least bit unreasonable to you? It doesn't to me.
Hopefully others with more experience will jump in with their comments.
regards,
gktignol
