Is LanzaTech Global (NASDAQ:LNZA) In A Good Position To Deliver On Growth Plans?

We can readily understand why investors are attracted to unprofitable companies. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. 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.

So should LanzaTech Global (NASDAQ:LNZA) shareholders be worried about its cash burn? In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

See our latest analysis for LanzaTech Global

When Might LanzaTech Global Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. When LanzaTech Global last reported its balance sheet in September 2022, it had zero debt and cash worth US$50m. Looking at the last year, the company burnt through US$95m. Therefore, from September 2022 it had roughly 6 months of cash runway. That's quite a short cash runway, indicating the company must either reduce its annual cash burn or replenish its cash. You can see how its cash balance has changed over time in the image below.

How Well Is LanzaTech Global Growing?

LanzaTech Global boosted investment sharply in the last year, with cash burn ramping by 99%. But the silver lining is that operating revenue increased by 29% in that time. In light of the data above, we're fairly sanguine about the business growth trajectory. In reality, this article only makes a short study of the company's growth data. You can take a look at how LanzaTech Global has developed its business over time by checking this visualization of its revenue and earnings history.

Can LanzaTech Global Raise More Cash Easily?

Since LanzaTech Global has been boosting its cash burn, the market will likely be considering how it can raise more cash if need be. 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).

LanzaTech Global has a market capitalisation of US$1.3b and burnt through US$95m last year, which is 7.2% of the company's market value. That's a low proportion, so we figure the company would be able to raise more cash to fund growth, with a little dilution, or even to simply borrow some money.

Is LanzaTech Global's Cash Burn A Worry?

On this analysis of LanzaTech Global's cash burn, we think its cash burn relative to its market cap was reassuring, while its cash runway has us a bit worried. We don't think its cash burn is particularly problematic, but after considering the range of factors in this article, we do think shareholders should be monitoring how it changes over time. An in-depth examination of risks revealed 1 warning sign for LanzaTech Global that readers should think about before committing capital to this stock.

Of course LanzaTech Global 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. 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.