Will Future FinTech Group (NASDAQ:FTFT) spend its money wisely?

Even when a business is losing money, it is possible for shareholders to make money if they buy a good business at the right price. For example, even though the software-as-a-service company Salesforce.com lost money for years while growing recurring revenue, if you’ve owned the stock since 2005, you’d have done very well. But the harsh reality is that very many loss-making companies burn through all their cash and go bankrupt.

Given this risk, we thought we’d take a look at whether Future FinTech Group (NASDAQ:FTFT) shareholders should be concerned about the cash burn. In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company uses each year to finance its growth. Let’s start with an examination of the business’s cash in relation to cash consumption.

Check out our latest analysis for Future FinTech Group

Does Future FinTech Group have a long money path?

A company’s cash runway is how long it will take to burn through its cash reserves at its current burn rate. Future FinTech Group has such a small amount of debt that we put it aside and focus on the USD 43 million in cash it had in June 2022. Looking at the last year, the company burned through USD 22 million. That means it had a cash runway of roughly 2.0 years from June 2022. While that cash runway isn’t too worrisome, reasonable holders would look into the distance and consider what happens if the company runs out of cash. The image below shows how the cash balance has changed in recent years.

How well is Future FinTech Group growing?

In particular, Future FinTech Group has actually increased its cash burn very hard and fast in the last year, by 176%, which means big investments in the business. Given that operating income increased by 2353% in the last year, there is a good chance that the investment will pay off. In light of the above data, we are quite clear about the business growth trajectory. In reality, this article only makes a brief study of the company’s growth data. This graph of historical revenue growth shows how Future FinTech Group builds its business over time.

How difficult would it be for future FinTech groups to raise more money for growth?

While Future FinTech Group appears to be in a pretty good position, it’s still worth considering how easily it can raise more money, even just to fuel faster growth. Generally speaking, a listed business can raise new money by issuing shares or taking on debt. Many companies end up issuing new shares to fund future growth. By looking at a company’s cash burn relative to market value, we gain insight into how much shareholders would be diluted if the company needed to raise enough cash to cover another year of cash burn.

As it has a market capitalization of USD 35 million, Future FinTech Group’s USD 22 million in cash burn equates to approximately 62% of its market cap. Given how large the cash burn is, relative to the market value of the entire company, we would consider it a high-risk stock, with a real possibility of extreme dilution.

How Risky Is Future FinTech Group’s Cash Burn Situation?

On this analysis of Future FinTech Group’s cash burn, we think the revenue growth was reassuring, while the increasing cash burn makes us a little worried. In summary, we think Future FinTech Group’s cash burn is a risk, based on the factors we mentioned in this article. A thorough investigation of risks uncovered 2 warning signs for Future FinTech Group which readers should consider before committing capital to this stock.

Of course, you can find a fantastic investment by looking elsewhere. So take a look at this free list of interesting companies, and this list of growth stocks (according to analyst forecasts)

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This article by Simply Wall St is general. We provide commentary based on historical data and analyst forecasts only using an objective methodology, and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares, and does not take into account your goals or your financial situation. We aim to provide you with long-term focused analysis driven by fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned.

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