Here's Why Augwind Energy Tech Storage (TLV:AUGN) Must Use Its Cash Wisely

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 software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you'd have done very well indeed. 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 Augwind Energy Tech Storage (TLV:AUGN) shareholders should 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. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

View our latest analysis for Augwind Energy Tech Storage

How Long Is Augwind Energy Tech Storage's 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 Augwind Energy Tech Storage last reported its balance sheet in September 2022, it had zero debt and cash worth ₪68m. Importantly, its cash burn was ₪58m over the trailing twelve months. That means it had a cash runway of around 14 months as of September 2022. That's not too bad, but it's fair to say the end of the cash runway is in sight, unless cash burn reduces drastically. Depicted below, you can see how its cash holdings have changed over time.

How Well Is Augwind Energy Tech Storage Growing?

Augwind Energy Tech Storage boosted investment sharply in the last year, with cash burn ramping by 58%. While that's concerning on it's own, the fact that operating revenue was actually down 28% over the same period makes us positively tremulous. Considering both these metrics, we're a little concerned about how the company is developing. In reality, this article only makes a short study of the company's growth data. You can take a look at how Augwind Energy Tech Storage has developed its business over time by checking this visualization of its revenue and earnings history.

How Hard Would It Be For Augwind Energy Tech Storage To Raise More Cash For Growth?

Since Augwind Energy Tech Storage can't yet boast improving growth metrics, 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. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund growth. We can compare a company's cash burn to its market capitalisation to get a sense for how many new shares a company would have to issue to fund one year's operations.

Since it has a market capitalisation of ₪86m, Augwind Energy Tech Storage's ₪58m in cash burn equates to about 68% of its market value. Given how large that cash burn is, relative to the market value of the entire company, we'd consider it to be a high risk stock, with the real possibility of extreme dilution.

How Risky Is Augwind Energy Tech Storage's Cash Burn Situation?

On this analysis of Augwind Energy Tech Storage's cash burn, we think its cash runway was reassuring, while its cash burn relative to its market cap has us a bit worried. After looking at that range of measures, we think shareholders should be extremely attentive to how the company is using its cash, as the cash burn makes us uncomfortable. Separately, we looked at different risks affecting the company and spotted 5 warning signs for Augwind Energy Tech Storage (of which 3 can't be ignored!) you should know about.

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

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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.