SaaS Metrics Encyclopedia
Cash Runway is a financial metric that measures the number of months a company can continue operating without running out of cash. It represents the duration during which a business can cover its operating expenses and financial obligations based on its current cash balance and expected cash inflows.
Measuring Cash Runway is critical for assessing a company's financial sustainability and its ability to weather challenges or disruptions. It provides insights into the company's liquidity and the time available to implement strategies for securing additional funding, achieving profitability, or making necessary operational adjustments. Cash Runway is a key indicator for investors, creditors, and company management to gauge the financial health and viability of a business.
Cash Runway is calculated by dividing the current cash balance by the average monthly cash burn rate. The formula is as follows:
Current Cash Balance / Burn Rate
For example, if a company has $500,000 in cash and its average monthly cash burn rate is $100,000, the Cash Runway would be 5 months.
Improving Cash Runway involves managing cash flow effectively and implementing strategies to extend the time a company can operate without additional funding.
Regularly monitoring Cash Runway and adjusting strategies in response to changes in the business environment allows companies to navigate financial challenges proactively and ensure long-term sustainability.
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