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Just because a business does not make any money, does not mean that the stock will go down. By way of example, Felix Group Holdings (ASX:FLX) has seen its share price rise 135% over the last year, delighting many shareholders. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.
Given its strong share price performance, we think it's worthwhile for Felix Group Holdings shareholders to consider whether its cash burn is concerning. 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.
Check out our latest analysis for Felix Group Holdings
Does Felix Group Holdings Have A Long Cash Runway?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Felix Group Holdings last reported its December 2023 balance sheet in February 2024, it had zero debt and cash worth AU$4.4m. In the last year, its cash burn was AU$4.7m. So it had a cash runway of approximately 11 months from December 2023. That's quite a short cash runway, indicating the company must either reduce its annual cash burn or replenish its cash. Depicted below, you can see how its cash holdings have changed over time.
How Well Is Felix Group Holdings Growing?
We reckon the fact that Felix Group Holdings managed to shrink its cash burn by 35% over the last year is rather encouraging. On top of that, operating revenue was up 35%, making for a heartening combination We think it is growing rather well, upon reflection. Of course, we've only taken a quick look at the stock's growth metrics, here. This graph of historic revenue growth shows how Felix Group Holdings is building its business over time.
Can Felix Group Holdings Raise More Cash Easily?
Felix Group Holdings seems to be in a fairly good position, in terms of cash burn, but we still think it's worthwhile considering how easily it could raise more money if it wanted to. Companies can raise capital through either debt or equity. Many companies end up issuing new shares to fund future 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).
Felix Group Holdings has a market capitalisation of AU$41m and burnt through AU$4.7m last year, which is 11% of the company's market value. As a result, we'd venture that the company could raise more cash for growth without much trouble, albeit at the cost of some dilution.