Will You Be Burnt By Fieratex SA.’s (ATH:FIER) Cash Burn?

Fieratex SA. (ATSE:FIER) continues its loss-making streak, announcing negative earnings for its latest financial year ending. A crucial question to bear in mind when you’re an investor of an unprofitable business, is whether the company will have to raise more capital in the near future. Additional cash raising may dilute the value of your shares, and since Fieratex is currently burning more cash than it is making, it’s likely the business will need funding for future growth. Fieratex may need to come to market again, but the question is, when? Below, I’ve analysed the most recent financial data to help answer this question. View our latest analysis for Fieratex

What is cash burn?

Fieratex currently has €678.70K in the bank, with negative cash flows from operations of -€920.01K. Since it is spending more money than it makes, the business is “burning” through its cash to run its day-to-day operations. The measure of how fast Fieratex goes through its cash reserves over time is called the cash burn rate. The most significant threat facing investor is the company going out of business when it runs out of money and cannot raise any more capital. Fieratex operates in the textiles industry, which on average generates a positive earnings per share, meaning the majority of its peers are profitable. Fieratex faces the trade-off between running the risk of depleting its cash reserves too fast, or risk falling behind its profitable competitors by investing too slowly.

ATSE:FIER Income Statement Apr 16th 18
ATSE:FIER Income Statement Apr 16th 18

When will Fieratex need to raise more cash?

Opex, or operational expenses, are the necessary costs Fieratex must pay to keep the business running every day. For the purpose of this calculation I’ve only accounted for sales, general and admin (SG&A) expenses, and R&D expenses incurred within this year. Opex declined by 6.12% over the past year, which could be an indication of Fieratex putting the brakes on ramping up high growth. However, even with declining costs, the current level of cash is not enough to sustain Fieratex’s operations and the company may need to come to market to raise more capital within the year. Even though this is analysis is fairly basic, and Fieratex still can cut its overhead further, or open a new line of credit instead of issuing new equity shares, the analysis still helps us understand how sustainable the Fieratex’s operation is, and when things may have to change.

Next Steps:

This analysis isn’t meant to deter you from Fieratex, but rather, to help you better understand the risks involved investing in loss-making companies. The cash burn analysis result indicates a cash constraint for the company, due to its current level of cash reserves. An opportunity may exist for you to enter into the stock at an attractive price, should Fieratex come to market to fund its operations. Keep in mind I haven’t considered other factors such as how FIER is expected to perform in the future. You should continue to research Fieratex to get a better picture of the company by looking at:
  1. Historical Performance: What has FIER’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
  2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Fieratex’s board and the CEO’s back ground.
  3. Other High-Performing Stocks: If you believe you should cushion your portfolio with something less risky, scroll through our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 30 June 2017. This may not be consistent with full year annual report figures. Operating expenses include only SG&A and one-year R&D.