Should Shareholders Worry About Research Frontiers’ Cash Burn?

Research Frontiers (NASDAQ:REFR) is an unprofitable company that has caught the attention of investors. But when a business is losing money, it’s important to understand the risks and opportunities involved. In this article, we will examine the cash burn of Research Frontiers to determine if shareholders should be worried.

Cash burn refers to the rate at which an unprofitable company spends cash to fund its growth. It is essentially the negative free cash flow. Research Frontiers had $3.5 million in cash and was debt-free as of June 2023. In the last year, the company burnt through $2.3 million, giving it a cash runway of around 18 months. While this is not too alarming, the end of the cash runway is in sight unless cash burn reduces drastically.

Over the past year, Research Frontiers’ cash burn has actually increased by a significant 55%. This spending increase is likely aimed at driving growth, but if the trend continues, the company’s cash runway will shrink quickly. Additionally, Research Frontiers lacks substantial operating revenue, which adds to the concerns.

Despite these risks, Research Frontiers has a relatively solid cash runway. With a market capitalization of $46 million, the company’s cash burn represents only about 5.0% of its market value. This suggests that it would be relatively easy for the company to raise more cash through the issuance of new shares or taking on debt.

Overall, while cash-burning companies can be risky, the analysis of Research Frontiers’ cash burn indicates that shareholders should not be too worried. However, it is important to note that there are other factors to consider when evaluating this investment opportunity. Investors should conduct thorough research and consider the risks and opportunities before making any decisions.

– Cash burn: The annual rate at which an unprofitable company spends cash to fund its growth.
– Cash runway: The amount of time a company can continue operating with its existing cash reserves.
– Market capitalization: The total value of a company’s outstanding shares in the stock market.

Source: Simply Wall St