Break even or burn? A weak economy calls for strong analytical tools
Abstract: Breakeven and burn rates have historically been used to gauge the viability of new borrowers that have yet to turn a profit, such as startups and high tech firms. But today lenders are applying these analytical tools to mature companies that are struggling to survive the recession. This article looks at what’s involved in a breakeven analysis, and how to calculate a customer’s burn rate (how fast it uses cash). It’s important to recalculate burn rate on a regular basis because unforeseen circumstances can affect the rate of cash consumption.