Burn rate is the term which is used in synonym for the cash flow in negative or opposite direction.
Concept of burn rate
Basically it is the measure of the speed of a company to use or consume the capital of a share holder. However if the capital of the share holder of a specific company is exhausted, then the company will have to take any choice. Either the strategy is adopted to make profit to a considerable value so that the interest or loss is compensated, or to search out additional options for funding of the company from where it can get revenues or to finally close down if there is no visible and tangible source. That is definitely the threshold or the company and its fiscal position.
Popularizing of burn rate
The term of burn rate was not commonly used previously but then it became into use commonly during the era of internet and when most of the business was done by the websites and dot com sources. This was the time when many companies went for start up from scratch after a loss or a new. In these cases also, the companies were required to pass through many stages in order to get funding form a proper and legal source.
Streamlining the cash flow
Enabling a positive flow of cash is very important even in case of the development of a company or its evolution. This becomes a way of increasing the chances of influx of profit income. In this way it becomes possible and easy for many companies to avoid and shortfall of credit and revenues. This situation also helps them from falling back to the situation of bankruptcy. This procedure also provides a time span to get next funding whenever the need arises. Usually the companies blame the new boom of technology for creating the burn rate and it resulted in an unsound management on part of many companies.
Burn rate may also refer to the pace of individuals at which they can spend money and get income at discrete rates. There are many examples in the financial world when many companies have fallen prey to the menace of burn rate but many other companies have also taken a new start emerging successfully in the present scenario.
- Debt ratios
- Liquidity ratios
- Profitability ratios
- Asset management ratios
- Cash Flow Indicator Ratios
- Market value ratios
- Financial analysis
- Business Terms
- Financial education
- International Financial Reporting Standards (EU)
- IFRS Interpretations (EU)
- Financial software
Most WantedFinancial Terms
- Most Important Financial Ratios
- Debt-to-Equity Ratio
- Financial Leverage
- Current Ratio
- Interest Coverage Ratio (ICR)
- Solvency Ratio
- Receivable Turnover Ratio
- Return On Capital Employed (ROCE)
- Accounts Payable Turnover Ratio
- Debt Service Coverage Ratio
Have 10 minutes to relax?Play our unique
Play The Game