Cash runway
Cash runway is an estimate of how many months a company's cash could fund its operations at its recent rate of cash burn, before any new financing.
Last verifiedHow it is calculated
The basic formula divides available cash by the rate at which operations consume it:
Runway (months) = Cash and short-term investments ÷ Monthly operating cash burn
Burn is usually taken from operating cash flow in the cash flow statement, averaged over recent quarters to smooth out lumpy payments. Some estimates also add expected capital spending or debt payments.
Worked example
Hypothetical: Company X's 10-Q shows $12,000,000 of cash at June 30 and operating cash outflows of $2,800,000, $3,100,000 and $3,000,000 in the last three quarters. Average quarterly burn is $2,966,667, or about $988,889 per month. Runway at June 30 is about 12.1 months. If you are reading this in late September, three months of that has likely been spent, leaving roughly 9 months, unless the company raised money since.
Why it matters
Runway is the clock behind most small-cap financing. A company with a short runway generally needs to raise money soon, and the terms it can get often depend on how much time it has left. A short runway is also a common reason for a going concern warning.
Caveats
- It is an estimate. Burn changes with trials, hiring and one-off payments.
- Cash figures age. A balance sheet can be months old by the time it is read. Any money raised since, through an ATM program or equity line for example, is not in it.
- Positive cash flow has no runway. If operations generate cash, the formula does not apply.
- Unmeasured is not zero. If cash or burn data is missing, the runway is unknown, not zero months.
How to spot it
Read the balance sheet, the cash flow statement and the "Liquidity and Capital Resources" section of the latest 10-Q or 10-K, where companies often state how long they expect cash to last. See Cash runway.
Guides that use this term
- How to Trade Penny Stocks Without Getting DilutedA dilution-first guide to penny stocks. How new shares reach the tape, which SEC filings announce them, worked examples, and a 20-minute filing check.
- How to Check a Penny Stock for Dilution in 20 MinutesA six-step filing checklist for dilution risk in a small-cap stock. What to open on EDGAR, which phrases to search for, and the four numbers to write down.
- Cash Runway: How to Calculate It From a 10-QHow to calculate cash runway from a 10-Q: find the cash, measure monthly burn, adjust for the time since quarter end, and read the notes that change the number.
- Going Concern Warning: What Substantial Doubt MeansWhat a going concern warning means, who decides there is substantial doubt, where it appears in a 10-K or 10-Q, and how to check the cash math behind it.
- How to Read a 10-Q and 10-K: Five Sections FirstHow to read a 10-Q or 10-K on a small cap. The five sections that show cash runway, going concern doubt and potential dilution, plus filing deadlines.
- Chapter 11 vs Chapter 7: Bankruptcy Stages for StocksChapter 11 vs Chapter 7 bankruptcy for public companies: each stage from petition and DIP financing to emergence, 8-K Item 1.03, and why tickers gain a Q.
Related terms
Check any ticker for dilution
DilutionScan reads each covered company's SEC filings and lists its warrants, convertibles, ATM programs, shelves and S-1s on one page, with a dilution rating and cash runway.
Definition from the Signal8 Academy glossary. Educational content only. DilutionScan and Signal8 are not broker-dealers or investment advisers, and nothing here is a recommendation to buy or sell any security.