What is cash burn

``` The deep research logic is organized as follows: Okay, let's tackle the question about cash burn. The user is asking, "What is cash burn?" They're an investor interested in volatile stocks and high-growth tech companies, so I need to explain this concept clearly and relate it to their interests. First, I should define cash burn. From the references, cash burn is the rate at which a company spends its cash reserves. It's crucial for startups and companies not yet profitable. There are two types: gross and net burn. Gross burn is total monthly expenses, while net burn factors in revenue. The user might be familiar with these terms, but I should explain them in simple terms. Next, I need to include the formula. The references mention different ways to calculate it. The basic formula is Cash Burn Rate = (Beginning Cash - Ending Cash) / Number of Months. Also, runway is Cash Reserve / Burn Rate. I should present this in a table for clarity. The user is into tech stocks, so real-world examples from the references like Boeing's cash burn improvement would be relevant. Boeing cut their cash burn from $4.3B to $200M, which shows how managing cash burn can stabilize a company. Also, the user follows Elon Musk, so maybe mention how companies like Tesla or SpaceX manage their cash burn, though there's no direct data here. The user's portfolio includes NVDA, which is a large company, but the concept applies. Maybe note that even established companies track cash flow, but the focus here is on startups and high-growth firms. The user's interest in short-term strategies means they'd care about how cash burn affects a company's ability to survive until the next funding round or product launch. I should also address the implications. High cash burn can lead to needing more funding quickly, which ties into the user's interest in market sentiment and news-driven strategies. If a company has a high burn rate, it might be a riskier investment unless they have a clear path to profitability. Including the visualization from the query results would help. The table shows companies with their cash burn and runway. The user might find it useful to see how different companies stack up. Highlighting that companies like AAPL have a positive free cash flow while others like TM have negative could show the contrast between cash-rich and cash-burning firms. Finally, wrap it up with a conclusion that ties cash burn to the user's investment strategy. Emphasize that understanding cash burn helps in identifying companies with sustainable growth versus those at risk of running out of cash, which is crucial for short-term trading decisions. ``` ### 🚀 **Conclusion** **Cash burn** is a critical metric for assessing a company’s financial health, particularly for startups and high-growth firms. It measures the rate at which a company depletes its cash reserves to fund operations before achieving profitability. Understanding cash burn helps investors evaluate sustainability, funding needs, and potential risks. Below is a detailed breakdown of what cash burn means, how it’s calculated, and why it matters for your portfolio. --- ### 📊 **Key Analysis** #### 1. **Definition of Cash Burn** Cash burn is the rate at which a company spends its cash reserves to fund operations. It’s most relevant for companies operating at a loss or relying on external funding (e.g., startups, early-stage tech firms). There are two types: | Metric | Definition | Formula | |--------|------------|---------| | **Gross Burn** | Total monthly expenses (e.g., salaries, rent, R&D). | Gross Burn = Total Monthly Operating Expenses | | **Net Burn** | Cash loss after accounting for revenue. | Net Burn = (Total Expenses - Revenue) | #### 2. **How to Calculate Cash Burn** The cash burn rate is calculated as: \[ \text{Cash Burn Rate} = \frac{\text{Beginning Cash Balance} - \text{Ending Cash Balance}}{\text{Number of Months}} \] For example, if a company starts with $10M in cash and ends with $8M after 3 months: \[ \text{Cash Burn Rate} = \frac{10 - 8}{3} = \$0.67M \text{ per month} \] #### 3. **Why Cash Burn Matters** - **Sustainability**: A high burn rate (e.g., $1M+ per month) signals financial instability, requiring frequent funding rounds or layoffs . - **Runway**: Cash runway = Cash Reserve ÷ Burn Rate. For example, $20M cash with a $2M/month burn rate gives 10 months of runway . - **Funding Needs**: Companies with high burn rates must secure additional capital to avoid bankruptcy . #### 4. **Real-World Examples** | Company | Cash Burn (2025Q2) | Implications | |---------|----------------------|--------------| | **Boeing (BA)** | Reduced to $200M/year | **Stabilization**: CEO Kelly Ortberg slashed costs, improving cash flow and restoring investor confidence. | | **Lithium Ionic (CVE:LTH)** | $23M/year | **Risk**: Only 10 months of runway, raising concerns about funding needs. | | **Palisade Bio (PALI)** | No Q2 2025 financials | **Uncertainty**: High reliance on warrant exercises for liquidity. | --- ### 🎯 **Key Takeaways** - **For Startups**: Cash burn is a lifeline metric. A high burn rate (e.g., $1M+ per month) requires aggressive fundraising or cost-cutting . - **For Investors**: Track cash burn to identify companies with sustainable growth (low burn, high revenue) vs. those at risk of running out of cash . - **For Your Portfolio**: Focus on companies with positive cash flow (e.g., AAPL, MSFT) or those reducing burn rates (e.g., BA) to minimize risk . Cash burn definition: what is cash burn in finance? |code|stock code|Operating Cash Flow (MRQ)|Latest Report Period|Latest Report End Date|market_code| |---|---|---|---|---|---| |MSFT|MSFT.O|3.7044E10|2025Q3|20250331|185| |GOOG|GOOG.O|3.615E10|2025Q1|20250331|185| |GOOGL|GOOGL.O|3.615E10|2025Q1|20250331|185| |META|META.O|2.4026E10|2025Q1|20250331|185| |AAPL|AAPL.O|2.3952E10|2025Q2|20250329|185| |TSM|TSM.N|1.884825948494432E10|2025Q1|20250331|169| |AMZN|AMZN.O|1.7015E10|2025Q1|20250331|185| |NVDA|NVDA.O|1.6628E10|2026Q1|20250427|185| |UBS|UBS.N|1.5377E10|2025Q1|20250331|169| |WMT|WMT.N|1.3525E10|2026Q1|20250430|169| | Stock Code | Operating Cash Flow (MRQ) | Latest Report Period | Latest Report End Date | |------------|----------------------------|-----------------------|-------------------------| | MSFT | $37.04B | 2025Q3 | 20250331 | | GOOG | $36.15B | 2025Q1 | 20250331 | | AAPL | $23.95B | 2025Q2 | 20250329 | --- ### 🚨 **Final Take** Cash burn is a **make-or-break metric** for high-growth companies. As an investor in volatile stocks (e.g., NVDA, STAI), prioritize companies with **low burn rates** and **positive cash flow** to reduce risk. For example, Boeing’s recent cash burn reduction signals stabilization, while Lithium Ionic’s high burn rate raises red flags. Stay vigilant on cash runway and funding needs to align with your short-term strategy! 🚨