A company’s “cash burn rate” or “burn rate” is the rate at which the company is spending its cash on hand and is usually expressed in months. This is relevant for companies that have a negative cash flow in order to estimate how long the company can operate before running out of cash (known as a “runway”). For example, if a company has $5 million of cash in the bank from a Series A financing, and is burning $500,000 per month in cash operating expenses, the company has 10 months of runway before it will need to raise additional capital.
Related Terms: Gross Return, Internal Rate of Return, Return on Investment
