We Think Fertoz (ASX:FTZ) Can Afford To Drive Business Growth

We can readily understand why investors are attracted to unprofitable companies. For example, Fertoz (ASX:FTZ) shareholders have done very well over the last year, with the share price soaring by 414%. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

Given its strong share price performance, we think it's worthwhile for Fertoz shareholders to consider whether its cash burn is concerning. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

Check out our latest analysis for Fertoz

Does Fertoz Have A Long Cash Runway?

You can calculate a company's cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. In June 2021, Fertoz had AU$1.5m in cash, and was debt-free. Importantly, its cash burn was AU$1.4m over the trailing twelve months. Therefore, from June 2021 it had roughly 13 months of cash runway. While that cash runway isn't too concerning, sensible holders would be peering into the distance, and considering what happens if the company runs out of cash. You can see how its cash balance has changed over time in the image below.

How Well Is Fertoz Growing?

Fertoz reduced its cash burn by 19% during the last year, which points to some degree of discipline. Having said that, the revenue growth of 63% was considerably more inspiring. We think it is growing rather well, upon reflection. In reality, this article only makes a short study of the company's growth data. You can take a look at how Fertoz is growing revenue over time by checking this visualization of past revenue growth.

How Hard Would It Be For Fertoz To Raise More Cash For Growth?

Even though it seems like Fertoz is developing its business nicely, we still like to consider how easily it could raise more money to accelerate growth. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. Commonly, a business will sell new shares in itself to raise cash and drive growth. By comparing a company's annual cash burn to its total market capitalisation, we can estimate roughly how many shares it would have to issue in order to run the company for another year (at the same burn rate).

Fertoz has a market capitalisation of AU$81m and burnt through AU$1.4m last year, which is 1.8% of the company's market value. That means it could easily issue a few shares to fund more growth, and might well be in a position to borrow cheaply.

Is Fertoz's Cash Burn A Worry?

It may already be apparent to you that we're relatively comfortable with the way Fertoz is burning through its cash. In particular, we think its revenue growth stands out as evidence that the company is well on top of its spending. Its weak point is its cash runway, but even that wasn't too bad! Based on the factors mentioned in this article, we think its cash burn situation warrants some attention from shareholders, but we don't think they should be worried. Taking a deeper dive, we've spotted 6 warning signs for Fertoz you should be aware of, and 1 of them shouldn't be ignored.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies insiders are buying, and this list of stocks growth stocks (according to analyst forecasts)

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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