Burn Rate

AAA

DEFINITION of 'Burn Rate'

The rate at which a new company uses up its venture capital to finance overhead before generating positive cash flow from operations. In other words, it's a measure of negative cash flow.

INVESTOPEDIA EXPLAINS 'Burn Rate'

Burn rate is usually quoted in terms of cash spent per month. For example, a burn rate of 1 million would mean the company is spending 1 million per month. When the burn rate begins to exceed forecasts, or revenue fails to meet expectations, the usual recourse is to reduce the burn rate (which, in most companies, means reducing staff).

RELATED TERMS
  1. Venture Capital

    Money provided by investors to startup firms and small businesses ...
  2. Trading Below Cash

    When a company's total share value is less than its cash minus ...
  3. Angel Investor

    An investor who provides financial backing for small startups ...
  4. Zombies

    Companies that continue to operate even though they are insolvent ...
  5. Dry Powder

    A slang term referring to marketable securities that are highly ...
  6. Cash Flow

    1. A revenue or expense stream that changes a cash account over ...
RELATED FAQS
  1. How has investing in the Internet sector evolved over time?

    Investing in the Internet sector has become more conservative over time. It reflects a more measured approach that shies ... Read Full Answer >>
  2. How does debt-to-capital change when a company issues new shares of stock?

    The debt to capital of a company changes when it issues new shares of stock by decreasing its amount of total debt in relation ... Read Full Answer >>
  3. What are the key differences between marketing and advertising?

    The key differences between marketing and advertising are based on how each term defines a separate function in the process ... Read Full Answer >>
  4. Why is a shareholder rights plan called a "poison pill?"

    To avoid being the target of a hostile takeover by a larger firm, a corporate board might adopt a defensive strategy called ... Read Full Answer >>
  5. What are the main objectives of cost accounting?

    Cost accounting is distinct and separate from general financial accounting, which is regulated by generally accepted accounting ... Read Full Answer >>
  6. Is variance good or bad for stock investors?

    Variance is neither good nor bad for investors in and of itself. However, high variance in a stock is associated with higher ... Read Full Answer >>
Related Articles
  1. Markets

    Burn Rate Key Factor In Company's Sustainability

    Be careful around companies with high cash burn rates. These investments can turn to ashes.
  2. Investing Basics

    Analyzing An Acquisition Announcement

    These deals can make or break investors' returns. Find out how to tell the difference.
  3. Markets

    Are Your Stocks Doomed?

    When a company is headed for trouble, the warning signs are usually there. Learn how to spot disaster.
  4. Entrepreneurship

    Run Your Finances Like A Business

    Think of yourself as your own little company. To make it run smoothly, you need to take a look at your books.
  5. Investing

    Chasing Down Biotech Zombie Stocks

    Find out whether you have "living dead" stocks lurking in your portfolio.
  6. Entrepreneurship

    What is Unlimited Liability?

    Unlimited liability means that the owners of a business are liable for the entire amount of debt and obligations of that business.
  7. Entrepreneurship

    The Story Behind Google's Success

    An ongoing commitment to innovation and rapid iteration drives Google's ongoing success.
  8. Entrepreneurship

    How To Profit From Solar Energy

    Once regarded as too expensive and inefficient, solar energy is now becoming a more viable option for consumers and businesses alike.
  9. Entrepreneurship

    New Battery Technology Investment Opportunities

    With the advent of mobile computing and electric cars, the importance of batteries for electrical power will continue to grow.
  10. Entrepreneurship

    The Story Behind Shake Shack's Success

    A humble Madison Square Park hot dog stand grew to become a gourmet casual food powerhouse in a classic American success story.

You May Also Like

Hot Definitions
  1. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  2. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  3. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  4. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
  5. Adverse Selection

    1. The tendency of those in dangerous jobs or high risk lifestyles to get life insurance. 2. A situation where sellers have ...
Trading Center