Runway

The rate at which a company spends cash in excess of its income, typically expressed as a monthly figure. Burn rate is a critical metric for startups and growth-stage companies, directly determining how long the business can operate before requiring additional capital (runway).

A measure of how much capital is required to generate a unit of revenue, calculated as total assets divided by total revenue. Companies with high intangible asset bases may report misleadingly low capital intensity because many intangible investments are expensed rather than capitalised on the balance sheet.

Book value is the net asset value of a company as recorded on its balance sheet — total assets minus total liabilities. The formula is simple: Book Value = Total Assets − Total Liabilities.

The annualised rate of return that smooths out growth over multiple years, calculated as (ending value / beginning value)^(1/years) minus one. CAGR is used to compare growth trajectories of companies or metrics across different time periods.

A dividend discount model that values a perpetual stream of cash flows growing at a constant rate, calculated as the next period's cash flow divided by the difference between the discount rate and the growth rate. The Gordon growth model is widely used to estimate terminal value in discounted cash flow analyses and requires that the assumed growth rate remains below the discount rate.

The annualised value of recurring subscription revenue. ARR is the primary top-line metric for SaaS and subscription businesses, providing a normalised view of predictable revenue that strips out one-time fees and variable charges.

A productivity metric that evaluates the output, revenue, or value generated relative to the number of employees. Headcount efficiency is a key performance indicator for scaling businesses and investors, revealing whether growth in intangible assets such as technology and process automation is translating into leverage across the workforce.

The sharp decline in revenue experienced by a pharmaceutical or technology company when patent protection expires on a key product, exposing it to generic or competitive alternatives. Patent cliffs are a critical consideration in the valuation of patent-dependent businesses, as revenue can decline 70-90% within 12-24 months of patent expiry in the pharmaceutical sector.

The Burn Multiple: Why Capital Efficiency Is the New Growth

The burn multiple has replaced growth rate as the metric investors scrutinise most. This guide explains the formula, stage-specific benchmarks, and why every dollar of burn should be creating an intangible asset that compounds in value.

What are realistic burn rates and how do you avoid misrepresenting runway?

Founders often calculate optimistic runway (assuming perfect cost control) when actual burn is higher. Honest runway = (cash on hand) / (conservative monthly burn + 3-month buffer).

What is burn rate and runway?

Burn rate is monthly cash spending; runway is current cash divided by monthly burn rate, indicating how many months until capital runs out.

How is the Rule of 40 calculated and when does it apply?

The Rule of 40 states that a healthy SaaS company's revenue growth rate plus profit margin should exceed 40% — it applies primarily to SaaS companies at scale and is used by investors to assess growth-profitability balance.