BURN RATE AND NET BURN RATE: CONCEPT, MEASUREMENT, AND IMPLICATIONS FOR PROFITABILITY

Akbar Harisma Ramanda; Sri Suryaningsum; Bambang Mahendra Andhika

doi:10.61677/count.v3i3.725

Authors

Akbar Harisma Ramanda Akuntansi, Fakultas Ekonomi dan Bisnis, UPN “Veteran” Yogyakarta
Sri Suryaningsum Akuntansi, Fakultas Ekonomi dan Bisnis, UPN “Veteran” Yogyakarta
Bambang Mahendra Andhika Manajemen, Universitas Terbuka

DOI:

https://doi.org/10.61677/count.v3i3.725

Keywords:

Burn rate, net burn rate, cash balance change, profitability, net profit margin.

Abstract

This study aims to explain the concepts of burn rate and net burn rate, the variation of measurement approaches (based on cash inflows–outflows and based on changes in cash balances), and their implications for profitability, especially net profit margin (NPM). This paper employs a scoping literature review method by compiling academic sources, journal articles, and practitioner references commonly used in startup and corporate financial analysis. The findings indicate that: (1) burn rate can be interpreted as “the rate of cash consumption “and is generally categorized into gross burn rate and net burn rate; (2) net burn rate can be calculated using an expense-income approach per period, or using a cash-balance-change approach that divides the difference between beginning and ending cash by the number of periods; (3) net burn rate is closely related to the concept of cash runway, which estimates how long a company can continue operating with its available cash; and (4) conceptually, burn rate may reduce short term profitability, yet in the context of growth investment, spending too little may also hinder performance and long-term sustainability. These findings provide a conceptual foundation for explaining burn rate and net burn rate variables in profitability-related research.

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