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Calculating a Firm’s Cash Burn Rate

August 16, 2014

As of this writing, we are still in the midst of a bull run that is over five years old. Recent market volatility has some wondering how much steam remains in it, but as of the close on August 8, the S&P 500 index was only 2.8% off its high since the market bottom of March 2009, and the NASDAQ Composite was only 2.6% off its high. Between the market low of March 9, 2009, and August 8, 2014, the S&P 500 index gained 193.8% while the NASDAQ Composite was up 253.6%.

As the market continues its upward march, more and more private firms are capitalizing on investor enthusiasm by setting initial public offerings (IPOs). According to Jay Ritter on Forbes.com, the first six months of 2014 saw 30 technology companies go public in the U.S., including software-as-a-service company Paycom Software (PAYC), cloud-based software company Castlight Health (CSLT) and U.K.-based interactive games company King Digital Entertainment (KING). Ritter goes on to say that if this rate continues, 2014 will have the most tech IPOs since 2007. While robust compared to recent years, this would only be roughly half of the 116 IPOs in an average year between 1980 and 2000.

While the number of tech IPOs has dropped off, they still garner a lot of media attention. Alibaba Group Holding is expected to launch its IPO in September and analysts are predicting it could fetch anywhere between $150 billion and nearly $200 billion, potentially making it the largest IPO ever.

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