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Burn rate
Also called: cash burn, net burn, operating burn, quarterly burn
How fast a company uses up cash, usually measured as operating cash outflow per quarter or per month.
Explanation
A company that loses money in cash terms is burning its cash. The cleanest measure is operating cash flow from the cash-flow statement: if it is −$12 million over a year, the burn is about $3 million a quarter, or $1 million a month. Some analysts add capital expenditures to get the total cash need, which is negative free cash flow.
Burn changes over time, so the period matters. The latest quarter is current but noisy (one large payment can distort it); a trailing twelve-month average is steadier but slower to react. Cash-flow statements are reported year-to-date, so a single quarter often has to be derived by subtraction.
Burn is the denominator of cash runway: cash divided by monthly burn is the number of months left.
Why it matters
Burn sets the clock. A company burning $3 million a quarter with $6 million in the bank must raise money within months, whatever its prospects.
How Equity Dictionary measures it
For quarterly filers, burn is half the latest quarter’s operating cash outflow plus half the trailing-twelve-month average; semi-annual filers use the latest half divided by two, annual filers the year divided by four. Positive TTM operating cash flow means cash-flow positive: no burn. If the latest quarter generated cash but the year still burned it, the TTM average alone sets the burn, so one good quarter cannot shrink it to almost nothing.
Related terms
- Cash runway: How many months a company can keep operating on the cash it has, at its current burn rate, before it must raise more.
- Free cash flow (FCF): Operating cash flow minus capital expenditures: the cash a business generates, or consumes, after paying to maintain and grow its assets.
- Trailing twelve months (TTM): The sum of the last four reported quarters, giving an annual figure that updates every quarter instead of once a year.
- Going concern: An accounting warning that a company may not be able to keep operating and paying its bills over the next year without raising money or restructuring.
- Dilution-risk score: Equity Dictionary’s 0–100 estimate of how much pressure a company is under to issue new stock, built from eight weighted factors.
Plain-English summary for research; not legal or investment advice.