Here's Why We're Not At All Concerned With Foresight Autonomous Holdings' (TLV:FRSX) Cash Burn Situation

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. For example, Foresight Autonomous Holdings (TLV:FRSX) shareholders have done very well over the last year, with the share price soaring by 248%. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

So notwithstanding the buoyant share price, we think it's well worth asking whether Foresight Autonomous Holdings' cash burn is too risky. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

View our latest analysis for Foresight Autonomous Holdings

How Long Is Foresight Autonomous Holdings' Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In December 2020, Foresight Autonomous Holdings had US$44m in cash, and was debt-free. Looking at the last year, the company burnt through US$12m. That means it had a cash runway of about 3.8 years as of December 2020. There's no doubt that this is a reassuringly long runway. Depicted below, you can see how its cash holdings have changed over time.

How Is Foresight Autonomous Holdings' Cash Burn Changing Over Time?

Because Foresight Autonomous Holdings isn't currently generating revenue, we consider it an early-stage business. So while we can't look to sales to understand growth, we can look at how the cash burn is changing to understand how expenditure is trending over time. With cash burn dropping by 3.6% it seems management feel the company is spending enough to advance its business plans at an appropriate pace. While the past is always worth studying, it is the future that matters most of all. So you might want to take a peek at how much the company is expected to grow in the next few years.

Can Foresight Autonomous Holdings Raise More Cash Easily?

Even though it has reduced its cash burn recently, shareholders should still consider how easy it would be for Foresight Autonomous Holdings to raise more cash in the future. Companies can raise capital through either debt or equity. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund 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).

Since it has a market capitalisation of US$218m, Foresight Autonomous Holdings' US$12m in cash burn equates to about 5.3% of its market value. 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.

So, Should We Worry About Foresight Autonomous Holdings' Cash Burn?

It may already be apparent to you that we're relatively comfortable with the way Foresight Autonomous Holdings is burning through its cash. In particular, we think its cash runway stands out as evidence that the company is well on top of its spending. On this analysis its cash burn reduction was its weakest feature, but we are not concerned about it. After taking into account the various metrics mentioned in this report, we're pretty comfortable with how the company is spending its cash, as it seems on track to meet its needs over the medium term. Taking a deeper dive, we've spotted 2 warning signs for Foresight Autonomous Holdings you should be aware of, and 1 of them can't be ignored.

If you would prefer to check out another company with better fundamentals, then do not miss this free list of interesting companies, that have HIGH return on equity and low debt or this list of stocks which are all forecast to grow.

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