Burn measures the change in a company’s cash balance in a month.
Burn for month x = Cash balance in month x - cash balance in month x-1
For quarterly and annual aggregations cash balance as of the end of the period is used, showing quarterly/annual burn figures. For example:
Burn for quarter x = Cash balance in last month of quarter x - cash balance in last month of quarter x-1
Runway measure how long a company can continue to operate without running out of cash at current levels of burn. There are many reasons why burn may diverge from GAAP net income. For example, annual contracts with upfront payments create positive cash flow cycles, while loan products create negative ones. Analyzing runway on a cash basis reveals these cash flow patterns and helps companies ensure they have the reserves they need to survive.
For quarterly and annual aggregations, cash balance at the end of the period and burn for the entire period (as defined above) is used. These figures are then multiplied by 3 or 12, respectively, to express runway in months. For example:
If a company’s cash balance increases in a period, no burn or runway is recorded.