What is Burn Rate?

Burn rate is a financial metric that measures the rate at which a company is spending its capital, typically in the form of cash or other liquid assets. It is typically expressed in terms of the amount of capital that is being burned per month or per year.

Burn rate is particularly relevant in business cases for start-ups and other companies that are in the early stages of their development, as they may have limited sources of revenue and may need to rely on external funding to cover their expenses.

A high burn rate can be a sign of financial distress, as it indicates that the company is using up its capital faster than it is being generated. On the other hand, a low burn rate can be a sign of financial stability and may be attractive to investors.

Burn rate is often used to inform funding decisions, as it helps to determine how much capital a company will need to sustain its operations and achieve its growth objectives. It is also used to monitor the financial performance of a company and to identify potential issues that may need to be addressed.

What is Cash Runway?

Cash runway is a financial metric also used in business cases that measures the amount of time that a company has before it runs out of cash. It is calculated by dividing the company's current cash balance by its burn rate, which is the rate at which the company is spending its cash. The resulting number represents the number of months that the company has before its cash balance reaches zero.

Cash runway is an important metric for companies, particularly start-ups and other companies that are in the early stages of their development, as it indicates the amount of time, they have to generate revenue and achieve profitability. A company with a long cash runway has more time to execute its business plan and achieve its growth objectives, while a company with a short cash runway may need to raise additional capital or take other measures to extend its runway.

Cash runway is often used to inform funding decisions, as it helps to determine how much capital a company will need to sustain its operations and achieve its growth objectives. It is also used to monitor the financial performance of a company and to identify potential issues that may need to be addressed.