Here's Why We're Not Too Worried About ReWalk Robotics' (NASDAQ:RWLK) Cash Burn Situation

We can readily understand why investors are attracted to unprofitable companies. For example, although Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

So should ReWalk Robotics (NASDAQ:RWLK) shareholders be worried about its 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). Let's start with an examination of the business' cash, relative to its cash burn.

View our latest analysis for ReWalk Robotics

Does ReWalk Robotics Have A Long Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. When ReWalk Robotics last reported its balance sheet in June 2022, it had zero debt and cash worth US$79m. Looking at the last year, the company burnt through US$15m. So it had a cash runway of about 5.4 years from June 2022. 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 ReWalk Robotics Growing?

At first glance it's a bit worrying to see that ReWalk Robotics actually boosted its cash burn by 27%, year on year. At least the revenue was up 20% during the period, even if it wasn't up by much. Considering the factors above, the company doesn’t fare badly when it comes to assessing how it is changing over time. Clearly, however, the crucial factor is whether the company will grow its business going forward. So you might want to take a peek at how much the company is expected to grow in the next few years.

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

There's no doubt ReWalk Robotics seems to be in a fairly good position, when it comes to managing its cash burn, but even if it's only hypothetical, it's always worth asking how easily it could raise more money to fund growth. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund 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.

ReWalk Robotics' cash burn of US$15m is about 25% of its US$57m 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.

So, Should We Worry About ReWalk Robotics' Cash Burn?

Even though its increasing cash burn makes us a little nervous, we are compelled to mention that we thought ReWalk Robotics' cash runway was relatively promising. 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 ReWalk Robotics' situation. Readers need to have a sound understanding of business risks before investing in a stock, and we've spotted 2 warning signs for ReWalk Robotics that potential shareholders should take into account before putting money into a stock.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies, and this list of stocks growth stocks (according to analyst forecasts)

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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.