47
thus
it
is
possible
to
calculate
the
number
of
days
the
company
can
survive
with the cash
that
have been
raised
from the
investors. The cash
burn ratio can be calculated as follows:
Cash Burn Ratio
Cash Balance
EBITDA
Table 2.23: Formula for calculating Cash Burn Ratio
From: Investment Valuation: Tools and Techniques for Determining the value of
Any Assets, 2002
Additionally,
Damodaran
(2002,
p.317)
states
that
cash
burn ratio
is
the
cash ratio that is widely used to analyze the potential error in cash flows
for company with negative earnings.
2.6.2 Financial Health Measurement
a) Cash Reinvestment Ratio
Cash
Reinvestment ratio
measures
the amount of
cash
flow
that
a
company
is reinvesting back into the business (Wild et al, 2007, p.391). On the other
hand, the cash reinvestment ratio can be used to reflects the company
performances
whether
the
company
requires additional
assets as
a result
of
mismanagement or the company is able to stay survive.
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