What is the formula for determining burn rate?

What is the formula for determining burn rate?

• A. Burn rate = Month starting balance + Month ending balance
• B. Burn rate = Month starting balance × Month ending balance
• C. Burn rate = Month starting balance ÷ Month ending balance
• D. Burn rate = Month starting balance - Month ending balance

Answer: (D)

Burn rate is the amount of cash spent during a period. It’s found by looking at how the cash balance changes from the start to the end of the period: subtract the ending balance from the starting balance. For example, starting with $100,000 and ending with $75,000 means a burn rate of $25,000. The other operations don’t measure how much cash was used: adding would give total cash, multiplying isn’t a measure of spending, and dividing yields a ratio rather than the amount spent. If the ending balance is higher than the starting balance, the burn rate would be negative, indicating cash growth during the period.

Burn rate is the amount of cash spent during a period. It’s found by looking at how the cash balance changes from the start to the end of the period: subtract the ending balance from the starting balance. For example, starting with $100,000 and ending with $75,000 means a burn rate of $25,000. The other operations don’t measure how much cash was used: adding would give total cash, multiplying isn’t a measure of spending, and dividing yields a ratio rather than the amount spent. If the ending balance is higher than the starting balance, the burn rate would be negative, indicating cash growth during the period.