We're Keeping An Eye On Augwind Energy Tech Storage's (TLV:AUGN) Cash Burn Rate

There's no doubt that money can be made by owning shares of unprofitable businesses. 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.

So, the natural question for Augwind Energy Tech Storage (TLV:AUGN) shareholders is whether they should be concerned by its rate of cash burn. For the purpose of this article, we'll define cash burn as the amount of cash the company is spending each year to fund its growth (also called its negative free cash flow). The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

See our latest analysis for Augwind Energy Tech Storage

When Might Augwind Energy Tech Storage Run Out Of Money?

A company's cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. When Augwind Energy Tech Storage last reported its balance sheet in March 2022, it had zero debt and cash worth ₪120m. In the last year, its cash burn was ₪58m. That means it had a cash runway of about 2.1 years as of March 2022. That's decent, giving the company a couple years to develop its business. The image below shows how its cash balance has been changing over the last few years.

How Is Augwind Energy Tech Storage's Cash Burn Changing Over Time?

Whilst it's great to see that Augwind Energy Tech Storage has already begun generating revenue from operations, last year it only produced ₪1.7m, so we don't think it is generating significant revenue, at this point. As a result, we think it's a bit early to focus on the revenue growth, so we'll limit ourselves to looking at how the cash burn is changing over time. In fact, it ramped its spending strongly over the last year, increasing cash burn by 146%. That sort of spending growth rate can't continue for very long before it causes balance sheet weakness, generally speaking. Augwind Energy Tech Storage makes us a little nervous due to its lack of substantial operating revenue. We prefer most of the stocks on this list of stocks that analysts expect to grow.

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

Given its cash burn trajectory, Augwind Energy Tech Storage shareholders may wish to consider how easily it could raise more cash, despite its solid cash runway. Companies can raise capital through either debt or equity. 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.

Augwind Energy Tech Storage's cash burn of ₪58m is about 24% of its ₪237m market capitalisation. That's not insignificant, and if the company had to sell enough shares to fund another year's growth at the current share price, you'd likely witness fairly costly 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 increasing cash burn 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. Separately, we looked at different risks affecting the company and spotted 5 warning signs for Augwind Energy Tech Storage (of which 3 are concerning!) you should know about.

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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.