What does the term "Burn Rate" refer to in a business context?

The term "Burn Rate" in a business context specifically refers to the rate at which a company consumes its capital, particularly in terms of cash expenditure that exceeds revenue. This metric is often used by startups and businesses that are not yet generating positive cash flow, as it helps assess how quickly they are using their available funds before reaching profitability. A high burn rate can indicate a need for additional funding or a reevaluation of expenditures to ensure sustainability.

Understanding burn rate is crucial for financial planning and managing resources. Investors and stakeholders closely monitor this figure to gauge the financial health of a company and its ability to sustain operations until it becomes profitable or secures further investment.