If your company is a start-up, or if you are concerned about how long you can survive in this recession, one financial metric you need to be able to calculate is the burn rate. Simply put, the burn rate is how fast you "burn" through cash in your business. All companies are concerned with the burn rate, particularly during a recession.
The "interval measure" is used to calculate the burn rate. The formula used is:
Current Assets/Average daily operating costs = Burn Rate
Current Assets is taken from the firm's balance sheet. Average daily operating costs are taken from the income statement and cash flow statement. You usually do not include depreciation in this figure but you do use interest expense.
The burn rate is generally how fast you burn through cash in the race to become profitable or before you need a new round of funding from bank loans, venture capitalists, or angel investors.
