Companies Like Kura Sushi USA (NASDAQ:KRUS) Are In A Position To Invest In Growth

We can readily understand why investors are attracted to unprofitable companies. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

Given this risk, we thought we'd take a look at whether Kura Sushi USA (NASDAQ:KRUS) shareholders should be worried about its cash burn. For the purpose of this article, we'll define cash burn as the amount of cash the company is spending each year to fund its growth (also called its negative free cash flow). The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

See our latest analysis for Kura Sushi USA

How Long Is Kura Sushi USA's Cash Runway?

A company's cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. When Kura Sushi USA last reported its balance sheet in November 2022, it had zero debt and cash worth US$27m. In the last year, its cash burn was US$17m. Therefore, from November 2022 it had roughly 19 months of cash runway. Importantly, analysts think that Kura Sushi USA will reach cashflow breakeven in 3 years. Essentially, that means the company will either reduce its cash burn, or else require more cash. You can see how its cash balance has changed over time in the image below.

How Well Is Kura Sushi USA Growing?

Notably, Kura Sushi USA actually ramped up its cash burn very hard and fast in the last year, by 125%, signifying heavy investment in the business. While that isa little concerning at a glance, the company has a track record of recent growth, evidenced by the impressive 77% growth in revenue, over the very same year. On balance, we'd say the company is improving over time. While the past is always worth studying, it is the future that matters most of all. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

Can Kura Sushi USA Raise More Cash Easily?

Kura Sushi USA seems to be in a fairly good position, in terms of cash burn, but we still think it's worthwhile considering how easily it could raise more money if it wanted to. Companies can raise capital through either debt or equity. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund growth. By looking at a company's cash burn relative to its market capitalisation, we gain insight on how much shareholders would be diluted if the company needed to raise enough cash to cover another year's cash burn.

Kura Sushi USA's cash burn of US$17m is about 4.4% of its US$391m market capitalisation. Given that is a rather small percentage, it would probably be really easy for the company to fund another year's growth by issuing some new shares to investors, or even by taking out a loan.

Is Kura Sushi USA's Cash Burn A Worry?

Even though its increasing cash burn makes us a little nervous, we are compelled to mention that we thought Kura Sushi USA's revenue growth was relatively promising. One real positive is that analysts are forecasting that the company will reach breakeven. Considering all the factors discussed in this article, we're not overly concerned about the company's cash burn, although we do think shareholders should keep an eye on how it develops. Taking an in-depth view of risks, we've identified 1 warning sign for Kura Sushi USA that you should be aware of before investing.

Of course Kura Sushi USA may not be the best stock to buy. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.