We're Not Very Worried About Augwind Energy Tech Storage's (TLV:AUGN) Cash Burn Rate

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. By way of example, Augwind Energy Tech Storage (TLV:AUGN) has seen its share price rise 107% over the last year, delighting many shareholders. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

So notwithstanding the buoyant share price, we think it's well worth asking whether Augwind Energy Tech Storage's cash burn is too risky. For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

View our latest analysis for Augwind Energy Tech Storage

Does Augwind Energy Tech Storage Have A Long 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. In June 2024, Augwind Energy Tech Storage had ₪55m in cash, and was debt-free. Importantly, its cash burn was ₪13m over the trailing twelve months. So it had a cash runway of about 4.2 years from June 2024. A runway of this length affords the company the time and space it needs to develop the business. Depicted below, you can see how its cash holdings have changed over time.

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 ₪10m, 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. The 68% reduction in its cash burn over the last twelve months may be good for protecting the balance sheet but it hardly points to imminent growth. In reality, this article only makes a short study of the company's growth data. This graph of historic revenue growth shows how Augwind Energy Tech Storage is building its business over time.

Can Augwind Energy Tech Storage Raise More Cash Easily?

While we're comforted by the recent reduction evident from our analysis of Augwind Energy Tech Storage's cash burn, it is still worth considering how easily the company could raise more funds, if it wanted to accelerate spending to drive growth. Companies can raise capital through either debt or equity. Commonly, a business will sell new shares in itself to raise cash and drive 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 has a market capitalisation of ₪80m and burnt through ₪13m last year, which is 17% of the company's market value. Given that situation, it's fair to say the company wouldn't have much trouble raising more cash for growth, but shareholders would be somewhat diluted.

Is Augwind Energy Tech Storage's Cash Burn A Worry?

It may already be apparent to you that we're relatively comfortable with the way Augwind Energy Tech Storage is burning through its cash. For example, we think its cash runway suggests that the company is on a good path. On this analysis its cash burn relative to its market cap was its weakest feature, but we are not concerned about it. Looking at all the measures in this article, together, we're not worried about its rate of cash burn; the company seems well on top of its medium-term spending needs. Taking a deeper dive, we've spotted 5 warning signs for Augwind Energy Tech Storage you should be aware of, and 2 of them are concerning.

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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.