What indicates a startup's runway?

What indicates a startup's runway?

• A. Cash burn rate relative to available cash.
• B. Revenue growth rate.
• C. Gross margin.
• D. Inventory turnover.

Answer: (C)

Runway measures how long a startup can keep operating before it runs out of cash. The key is cash burn relative to the cash you have on hand. You estimate the monthly cash outflow (burn rate) and divide the current cash on hand by that burn rate. The result tells you how many months you can continue operating under the present spending and revenue conditions. So, the best indicator of runway is how quickly cash is leaving the business compared with how much cash is available. Gross margin, while important for profitability per sale, doesn’t directly tell you how long you can fund operations from existing cash. Revenue growth and inventory turnover influence cash flow in broader ways, but they don’t directly quantify the time left given current cash and burn.

Runway measures how long a startup can keep operating before it runs out of cash. The key is cash burn relative to the cash you have on hand. You estimate the monthly cash outflow (burn rate) and divide the current cash on hand by that burn rate. The result tells you how many months you can continue operating under the present spending and revenue conditions.

So, the best indicator of runway is how quickly cash is leaving the business compared with how much cash is available. Gross margin, while important for profitability per sale, doesn’t directly tell you how long you can fund operations from existing cash. Revenue growth and inventory turnover influence cash flow in broader ways, but they don’t directly quantify the time left given current cash and burn.