Here's Why We're Not Too Worried About Ideal Power's (NASDAQ:IPWR) Cash Burn Situation
Just because a business does not make any money, does not mean that the stock will go down. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.
So should Ideal Power (NASDAQ:IPWR) 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). First, we'll determine its cash runway by comparing its cash burn with its cash reserves.
How Long Is Ideal Power's Cash Runway?
You can calculate a company's cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. In June 2026, Ideal Power had US$41m in cash, and was debt-free. Importantly, its cash burn was US$9.8m over the trailing twelve months. So it had a cash runway of about 4.2 years from June 2026. There's no doubt that this is a reassuringly long runway. The image below shows how its cash balance has been changing over the last few years.
See our latest analysis for Ideal Power
How Is Ideal Power's Cash Burn Changing Over Time?
In our view, Ideal Power doesn't yet produce significant amounts of operating revenue, since it reported just US$30k in the last twelve months. Therefore, for the purposes of this analysis we'll focus on how the cash burn is tracking. It seems likely that the business is content with its current spending, as the cash burn rate stayed steady over the last twelve months. Ideal Power makes us a little nervous due to its lack of substantial operating revenue. So we'd generally prefer stocks from this list of stocks that have analysts forecasting growth.
How Hard Would It Be For Ideal Power To Raise More Cash For Growth?
Since its cash burn is increasing (albeit only slightly), Ideal Power shareholders should still be mindful of the possibility it will require more cash in the future. Companies can raise capital through either debt or equity. 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.
Ideal Power has a market capitalisation of US$84m and burnt through US$9.8m last year, which is 12% 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.
How Risky Is Ideal Power's Cash Burn Situation?
As you can probably tell by now, we're not too worried about Ideal Power's cash burn. For example, we think its cash runway suggests that the company is on a good path. While its increasing cash burn wasn't great, the other factors mentioned in this article more than make up for weakness on that measure. 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. On another note, we conducted an in-depth investigation of the company, and identified 5 warning signs for Ideal Power (4 are concerning!) that you should be aware of before investing here.
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.