BrainsWay (TLV:BWAY) Is In A Strong Position To Grow Its Business

There's no doubt that money can be made by owning shares of unprofitable businesses. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

Given this risk, we thought we'd take a look at whether BrainsWay (TLV:BWAY) shareholders should be worried about its cash burn. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. Let's start with an examination of the business' cash, relative to its cash burn.

See our latest analysis for BrainsWay

Does BrainsWay 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 June 2021, BrainsWay had cash of US$56m and no debt. In the last year, its cash burn was US$3.1m. That means it had a cash runway of very many years as of June 2021. While this is only one measure of its cash burn situation, it certainly gives us the impression that holders have nothing to worry about. You can see how its cash balance has changed over time in the image below.

How Well Is BrainsWay Growing?

Happily, BrainsWay is travelling in the right direction when it comes to its cash burn, which is down 65% over the last year. And revenue is up 24% in that same period; also a good sign. It seems to be growing nicely. While the past is always worth studying, it is the future that matters most of all. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

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

While BrainsWay seems to be in a decent position, we reckon it is still worth thinking about how easily it could raise more cash, if that proved desirable. Companies can raise capital through either debt or equity. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund 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).

BrainsWay's cash burn of US$3.1m is about 2.5% of its US$124m market capitalisation. So it could almost certainly just borrow a little to fund another year's growth, or else easily raise the cash by issuing a few shares.

Is BrainsWay's Cash Burn A Worry?

As you can probably tell by now, we're not too worried about BrainsWay's cash burn. For example, we think its cash runway suggests that the company is on a good path. And even though its revenue growth wasn't quite as impressive, it was still a positive. Taking all the factors in this report into account, we're not at all worried about its cash burn, as the business appears well capitalized to spend as needs be. Taking an in-depth view of risks, we've identified 1 warning sign for BrainsWay that you should be aware of before investing.

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.