Burn Rate
Definition
Burn rate quantifies the speed at which a company expends its financial resources, typically over a specific period.
This metric represents the rate at which a business is consuming its cash reserves. It is often calculated by subtracting the cash remaining at the end of a period from the cash at the beginning of that period, then dividing by the number of periods. This figure highlights how quickly a company is spending money to operate, which is crucial for understanding its financial runway.
For instance, a startup might have a high burn rate if it is investing heavily in product development and marketing.
This term is particularly common in the startup and venture capital sectors, where companies frequently operate at a loss while aiming for rapid growth.