Burn multiple
What it measures¶
A company burns cash when its free cash flow — operating cash flow minus capital expenditure — is negative. The burn multiple divides the cash burned over the latest year by the new revenue added in that year (this year's revenue minus last year's). A multiple of 1.5 means the company spent 1.5 units of cash for each unit of revenue it added. The check asks: is it 2.0 or less?
It applies only to a pre-profit company — one with a net loss in each of its latest two fiscal years.
Why it is on the page¶
It measures how efficiently a company that is not yet profitable turns cash into growth. Burning a great deal of cash for little new revenue means the company needs more money from investors sooner, and on worse terms.
Thresholds, their source and the population they were fitted on¶
| Result | When |
|---|---|
| ✓ passed | cash burned ÷ new revenue is 2.0 or less |
| ✕ failed | it is above 2.0, or revenue did not grow while cash was burned |
| ○ not evaluable | free cash flow or the revenue of either year is not stored |
| ○ not applicable | the company did not burn cash in the year |
David Sacks, who proposed the measure, read below 1 as excellent, 1 to 1.5 as good, 1.5 to 2 as suspect and above 2 as poor; the check draws its line at 2.
- Source: David Sacks (2020), "The burn multiple".
- Fitted on: no published sample — an investor's convention for venture-funded software companies.
- Evidence grade: folklore.
- Basis: absolute.
A worked example¶
NuScale Power, fiscal year 2025 (statements stored on 25 October 2026): the company burned cash while its revenue fell, so no multiple can be printed — there was no new revenue to divide by — and the check failed with the note revenue did not grow.
An illustration, not a stored figure: a company that burned 60 million while adding 40 million of revenue has a burn multiple of 1.5 and would pass.
What “No verdict” means here¶
The check is not evaluable when free cash flow or either year's revenue is missing; it is not applicable when the company did not burn cash at all. Either way it leaves the area's count with the reason named.
What the verdict is and is not¶
A pass says the year's growth was bought with no more than twice its value in cash. It is an investors' rule of thumb, not a tested line; a company in a long development phase, such as building a power plant design, can fail it for years by design. It is not a forecast and not an instruction to trade the shares.