Definition of Cash Runway
What does the term "cash runway" mean in the world of finance and investing? What does the term "cash runway" mean?
"Cash runway" refers to the length of time in which a company will remain solvent, assuming that they are unable to raise more money.
For instance - let's say that a biotech company reveals that they have "cash runway" until the middle of 2018. This means that they expect to have enough money to fund operations until the middle of 2018. At this time, they will likely need to raise capital in order to keep the business running.
In order to calculate a company's cash runway, simply perform this calculation:
Total Cash / Burn Rate
So, if a company has $30 million in cash and is burning through $5 million per month, they would have a cash runway of six months before they would have to raise more money.
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