Cash runway

Cash runway refers to the calculated period of time a company can continue operating without raising further capital or generating positive cash flow from the business. It is an important indicator that gives insight into how long the company can maintain its current operations before running out of cash.

How it is calculated

Cash runway is calculated by dividing the company's total cash balance by the company's average negative net burn rate (monthly or annual). The formula is as follows:

Cash runway = Total cash balance / Average burn rate

To arrive at a more accurate calculation of cash runway, expected future cash receipts can also be included in the calculation.

What is it used for?

Cash runway is an important measure for assessing the company's financial sustainability and financial health. It gives the company, its investors and its stakeholders an idea of how long the company can continue its current operations, and how much time they have to reach profitability, raise new financing or make the necessary adjustments to the business.

Tips for managing cash runway

• Effective cost control: Identify areas where costs can be reduced or optimised in order to extend the cash runway.
• Consider new financing options: Explore alternative sources of financing in order to raise the capital needed and extend the cash runway.
• Focus on profitability: Work to increase revenue and reduce costs in order to approach positive cash flow and increase the cash runway.

By monitoring cash runway carefully, the company can plan its financial strategy better and make informed decisions in order to keep the business going in the long term.

Read more about how the forecasts in Capassa calculate cash runway going forward on the basis of expected cash flow.