Kodak’s cash burn was a big concern among analysts in the last months before the firm’s bankruptcy in January of this year. Cash burn is a term that gets thrown around a lot when companies are in trouble, but it’s hard to find a definition for it in books on accounting or financial statement analysis.

Accountingglossary.net defines cash burn as “the rate that a company uses up cash” and calculates it as “Total Cash Change / Time Period.” We think that’s a useful approach to analyzing how a company consumes its cash, although we think we have a better way.

Our method starts with the company’s Internal Cash Flow. To calculate Internal Cash Flow, start with the company’s cash flow statement and use the values presented there. The formula is: Internal Cash Flow = Cash Flow from Operating Activities + Cash Flow from Investing Activities + All Uses of Cash in Financing Activities.

Cash flows with negative values in the cash flow statement have negative values in the formula. Uses of cash in financing activities include debt repayment, dividends, share repurchases, and any other outflow in that part of the cash flow statement.

Internal Cash Flow includes all operating and investing sources of cash and all operating, investing, and financing uses of cash. It’s cash flow before external financing, so it excludes cash from borrowings, debt issues, and equity issues.

If Internal Cash Flow is negative, the company is not generating enough cash in the period to meet all of its needs. That leaves it with only two ways to plug the cash gap: get financing or use cash reserves.

Kodak had an Internal Cash Flow deficit every year 2008 through 2011, as the chart shows. Declining revenues, growing losses, and disappearing credit from suppliers drove cash flows down year after year. The chart also shows how the company dealt with its chronic cash flow problems.

Kodak borrowed money to finance some of its Internal Cash Flow needs; for example, $412 million in 2011. But its biggest source of cash wasn’t financing; it was cash reserves. In 2011, Kodak used $777 million of its own cash to close its Internal Cash Flow gap. Over all four years, the company had a cumulative cash flow deficit of $3.8 billion, which it filled with $1.8 billion in debt and $2.0 billion from its cash reserves.

And that brings us to the meaning of cash burn. We think the best sense of the term is the amount of cash reserves the company uses to help fund an Internal Cash Flow deficit. It highlights the use of an important source of liquidity, it’s a good early warning sign of distress, and it was clearly a big negative for Kodak.