Calculating "Burn Rate" and "Runway"

Beginner4 min read

All figures are for a fictional company, "TechBeast Corp", and are illustrative.

Many IPO companies are unprofitable, so it helps to calculate their "Runway." Runway estimates how many months the company can operate before it runs out of cash or has to raise more money.

Interactive Formula Builder

To find the runway, we pull one number from the Balance Sheet and one from the Cash Flow Statement.

Step 1: Find the Cash (Balance Sheet)

TechBeast Corp has $150 million in cash.

Step 2: Find the Monthly Burn Rate (Cash Flow)

TechBeast Corp's free cash flow is negative $30 million for the year.
Divide by 12 months: they burn $2.5 million per month.

Step 3: The Runway Calculation

Total Cash ($150M)÷Monthly Burn Rate ($2.5M)=60 Months of Runway

The Beast Verdict: A runway of 60 months is very comfortable: about five years to reach profitability. A runway of less than 12 months is a warning sign, because the company will probably need to raise money soon.

Beast Tip: Use the most recent figures (burn can speed up as a company grows), and check the S-1's "pro forma" cash, which shows the company's cash after the IPO proceeds are added.