We're Not Very Worried About Foxtron Vehicle Technologies' (TWSE:2258) Cash Burn Rate

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, although Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

So, the natural question for Foxtron Vehicle Technologies (TWSE:2258) shareholders is whether they should be concerned by its rate of cash burn. 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. Let's start with an examination of the business' cash, relative to its cash burn.

Check out our latest analysis for Foxtron Vehicle Technologies

Does Foxtron Vehicle Technologies Have A Long Cash Runway?

A cash runway is defined as the length of time it would take a company to run out of money if it kept spending at its current rate of cash burn. When Foxtron Vehicle Technologies last reported its September 2024 balance sheet in November 2024, it had zero debt and cash worth NT$5.7b. In the last year, its cash burn was NT$4.2b. That means it had a cash runway of around 16 months as of September 2024. 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. Depicted below, you can see how its cash holdings have changed over time.

How Well Is Foxtron Vehicle Technologies Growing?

Foxtron Vehicle Technologies actually ramped up its cash burn by a whopping 94% in the last year, which shows it is boosting investment in the business. But shareholders are no doubt taking some confidence from the rockstar revenue growth of 866% during that same year. On balance, we'd say the company is improving over time. In reality, this article only makes a short study of the company's growth data. You can take a look at how Foxtron Vehicle Technologies is growing revenue over time by checking this visualization of past revenue growth.

How Easily Can Foxtron Vehicle Technologies Raise Cash?

Even though it seems like Foxtron Vehicle Technologies is developing its business nicely, we still like to consider how easily it could raise more money to accelerate growth. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. Many companies end up issuing new shares to fund future growth. By looking at a company's cash burn relative to its market capitalisation, we gain insight on how much shareholders would be diluted if the company needed to raise enough cash to cover another year's cash burn.

Since it has a market capitalisation of NT$80b, Foxtron Vehicle Technologies' NT$4.2b in cash burn equates to about 5.2% 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 Foxtron Vehicle Technologies' Cash Burn?

On this analysis of Foxtron Vehicle Technologies' cash burn, we think its revenue growth was reassuring, while its increasing cash burn has us a bit worried. While we're the kind of investors who are always a bit concerned about the risks involved with cash burning companies, the metrics we have discussed in this article leave us relatively comfortable about Foxtron Vehicle Technologies' situation. Readers need to have a sound understanding of business risks before investing in a stock, and we've spotted 2 warning signs for Foxtron Vehicle Technologies that potential shareholders should take into account before putting money into a stock.

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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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.