Plain definition
Cash runway estimates how long a company can operate before usable cash reaches its minimum floor, assuming normalized net cash burn continues.
Monthly net cash burn = normalized recurring operating cash outflows − normalized recurring operating cash inflows
Cash runway = (usable cash − minimum cash floor) ÷ monthly net cash burn
Use this formula only when monthly net cash burn is positive.
Worked example
Monetary examples use Saudi riyals (SAR). The same principles apply in other currencies.
A company has of usable cash. Its minimum cash floor is , recurring operating inflows are per month, and recurring operating outflows are per month.
| Recurring operating outflows | |
|---|---|
| Recurring operating inflows | |
| Monthly net cash burn |
| Usable cash | |
|---|---|
| Minimum cash floor | |
| Cash above the floor |
| Cash above the floor | |
|---|---|
| Monthly net cash burn | |
| Runway |
The company has six months before usable cash reaches its minimum floor, if normalized burn continues.
Why it matters
The bank balance is not the runway.
Only the cash above the minimum floor can absorb the recurring deficit. A large total balance can still hide a short operating window.
Owner funding, borrowing, and asset-sale proceeds can increase cash without improving recurring operating performance.
Treating those sources as recurring inflows can overstate runway.
Practical consequence
Use normalized recurring operating cash flows.
Exclude owner funding, borrowing, and exceptional asset sales from normalized burn.
Keep known one-off cash movements in the dated forecast. Their timing still affects liquidity.
If monthly net burn is zero or negative, do not force a runway number. Use the dated forecast and downside scenarios instead.
Try your own numbers
Estimate how long unrestricted cash stays above the reserve at the current operating burn.
Cash runway