We're Not Very Worried About Electreon Wireless' (TLV:ELWS) Cash Burn Rate

There's no doubt that money can be made by owning shares of unprofitable businesses. By way of example, Electreon Wireless (TLV:ELWS) has seen its share price rise 154% over the last year, delighting many shareholders. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

So notwithstanding the buoyant share price, we think it's well worth asking whether Electreon Wireless' cash burn is too risky. 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. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

See our latest analysis for Electreon Wireless

Does Electreon Wireless Have A Long Cash Runway?

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. As at September 2023, Electreon Wireless had cash of ₪68m and no debt. Importantly, its cash burn was ₪68m over the trailing twelve months. That means it had a cash runway of around 12 months as of September 2023. 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. You can see how its cash balance has changed over time in the image below.

How Well Is Electreon Wireless Growing?

On balance, we think it's mildly positive that Electreon Wireless trimmed its cash burn by 18% over the last twelve months. But the operating revenue growth of 259% was even better. It seems to be growing nicely. In reality, this article only makes a short study of the company's growth data. You can take a look at how Electreon Wireless is growing revenue over time by checking this visualization of past revenue growth.

How Hard Would It Be For Electreon Wireless To Raise More Cash For Growth?

Even though it seems like Electreon Wireless is developing its business nicely, we still like to consider how easily it could raise more money to accelerate growth. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. Commonly, a business will sell new shares in itself to raise cash and drive 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).

Electreon Wireless' cash burn of ₪68m is about 8.5% of its ₪801m market capitalisation. Given that is a rather small percentage, it would probably be really easy for the company to fund another year's growth by issuing some new shares to investors, or even by taking out a loan.

How Risky Is Electreon Wireless' Cash Burn Situation?

Electreon Wireless appears to be in pretty good health when it comes to its cash burn situation. Not only was its cash burn relative to its market cap quite good, but its revenue growth was a real positive. While we're the kind of investors who are always a bit concerned about the risks involved with cash burning companies, the metrics we have discussed in this article leave us relatively comfortable about Electreon Wireless' situation. Taking a deeper dive, we've spotted 4 warning signs for Electreon Wireless you should be aware of, and 2 of them are potentially serious.

If you would prefer to check out another company with better fundamentals, then do not miss this free list of interesting companies, that have HIGH return on equity and low debt or this list of stocks which are all forecast to grow.

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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.