How is runway estimated?

How is runway estimated?

• A. Projected revenue for next quarter divided by burn rate
• B. Monthly burn rate multiplied by months of runway
• C. Available cash divided by monthly burn rate
• D. Total funding divided by annual revenue

Answer: (C)

Runway is the number of months a company can keep operating at its current cash spending before it runs out of cash. The best way to estimate it is to divide the cash you have on hand by the monthly cash burn (the amount of cash you spend each month). If you have, say, $600,000 available and burn $40,000 per month, you have about 15 months of runway. If revenue offsets some spending, use the net burn (expenses minus revenue) to get an accurate figure. The other approaches don’t reflect how long cash will last: multiplying burn by months gives total cash spent, not remaining time; using total funding or quarterly revenue doesn’t tie directly to the cash available to sustain operations.

Runway is the number of months a company can keep operating at its current cash spending before it runs out of cash. The best way to estimate it is to divide the cash you have on hand by the monthly cash burn (the amount of cash you spend each month). If you have, say, $600,000 available and burn $40,000 per month, you have about 15 months of runway. If revenue offsets some spending, use the net burn (expenses minus revenue) to get an accurate figure. The other approaches don’t reflect how long cash will last: multiplying burn by months gives total cash spent, not remaining time; using total funding or quarterly revenue doesn’t tie directly to the cash available to sustain operations.