We Think Epitomee Medical (TLV:EPIT) Needs To Drive Business Growth Carefully

We can readily understand why investors are attracted to unprofitable companies. By way of example, Epitomee Medical (TLV:EPIT) has seen its share price rise 149% 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 Epitomee Medical's 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'.

We've discovered 3 warning signs about Epitomee Medical. View them for free.

When Might Epitomee Medical Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at December 2024, Epitomee Medical had cash of US$22m and no debt. Looking at the last year, the company burnt through US$13m. That means it had a cash runway of around 21 months as of December 2024. 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.

Check out our latest analysis for Epitomee Medical

How Is Epitomee Medical's Cash Burn Changing Over Time?

Because Epitomee Medical isn't currently generating revenue, we consider it an early-stage business. So while we can't look to sales to understand growth, we can look at how the cash burn is changing to understand how expenditure is trending over time. Over the last year its cash burn actually increased by 7.6%, which suggests that management are increasing investment in future growth, but not too quickly. That's not necessarily a bad thing, but investors should be mindful of the fact that will shorten the cash runway. Admittedly, we're a bit cautious of Epitomee Medical due to its lack of significant operating revenues. We prefer most of the stocks on this list of stocks that analysts expect to grow.

How Easily Can Epitomee Medical Raise Cash?

While its cash burn is only increasing slightly, Epitomee Medical shareholders should still consider the potential need for further cash, down the track. 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. 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 US$72m, Epitomee Medical's US$13m in cash burn equates to about 18% of its 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.

How Risky Is Epitomee Medical's Cash Burn Situation?

On this analysis of Epitomee Medical's cash burn, we think its cash runway was reassuring, while its increasing cash burn has us a bit worried. 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 Epitomee Medical's situation. On another note, we conducted an in-depth investigation of the company, and identified 3 warning signs for Epitomee Medical (1 is potentially serious!) that you should be aware of before investing here.

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.