Companies Like Fortress Technologies (CVE:FORT) Can Afford To Invest In Growth

Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. By way of example, Fortress Technologies (CVE:FORT) has seen its share price rise 350% over the last year, delighting many shareholders. But while the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.

Given its strong share price performance, we think it's worthwhile for Fortress Technologies shareholders to consider whether its cash burn is concerning. For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

View our latest analysis for Fortress Technologies

Does Fortress Technologies Have A Long Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In September 2020, Fortress Technologies had CA$9.0m in cash, and was debt-free. In the last year, its cash burn was CA$1.5m. So it had a cash runway of about 5.8 years from September 2020. While this is only one measure of its cash burn situation, it certainly gives us the impression that holders have nothing to worry about. Depicted below, you can see how its cash holdings have changed over time.

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

Companies can raise capital through either debt or equity. Many companies end up issuing new shares to fund future growth. We can compare a company's cash burn to its market capitalisation to get a sense for how many new shares a company would have to issue to fund one year's operations.

Fortress Technologies' cash burn of CA$1.5m is about 4.1% of its CA$38m market capitalisation. Given that is a rather small percentage, it would probably be really easy for the company to fund another year's growth by issuing some new shares to investors, or even by taking out a loan.

How Risky Is Fortress Technologies' Cash Burn Situation?

Because Fortress Technologies is an early stage company, we don't have a great deal of data on which to form an opinion of its cash burn. However, it is fair to say that its cash runway gave us comfort. Overall, we think its cash burn seems perfectly reasonable, and we are not concerned by it. Taking a deeper dive, we've spotted 5 warning signs for Fortress Technologies you should be aware of, and 2 of them are a bit concerning.

Of course Fortress Technologies may not be the best stock to buy. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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This article by Simply Wall St is general in nature. 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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