Here's Why We're Not At All Concerned With Kura Sushi USA's (NASDAQ:KRUS) Cash Burn Situation

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 purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

See our latest analysis for Kura Sushi USA

When Might Kura Sushi USA Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at February 2022, Kura Sushi USA had cash of US$36m and no debt. In the last year, its cash burn was US$5.7m. That means it had a cash runway of about 6.4 years as of February 2022. While this is only one measure of its cash burn situation, it certainly gives us the impression that holders have nothing to worry about. You can see how its cash balance has changed over time in the image below.

How Well Is Kura Sushi USA Growing?

Kura Sushi USA managed to reduce its cash burn by 85% over the last twelve months, which is extremely promising, when it comes to considering its need for cash. But its revenue is better yet, flying higher than Elon Musk and his rocket, with growth of 301% in the last year. Overall, we'd say its growth is rather impressive. Clearly, however, the crucial factor is whether the company will grow its business going forward. 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?

While Kura Sushi USA seems to be in a decent position, we reckon it is still worth thinking about how easily it could raise more cash, if that proved desirable. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund growth. We can compare a company's cash burn to its market capitalisation to get a sense for how many new shares a company would have to issue to fund one year's operations.

Kura Sushi USA's cash burn of US$5.7m is about 1.0% of its US$543m market capitalisation. So it could almost certainly just borrow a little to fund another year's growth, or else easily raise the cash by issuing a few shares.

Is Kura Sushi USA's Cash Burn A Worry?

As you can probably tell by now, we're not too worried about Kura Sushi USA's cash burn. For example, we think its cash burn reduction suggests that the company is on a good path. But it's fair to say that its cash burn relative to its market cap was also very reassuring. After considering a range of factors in this article, we're pretty relaxed about its cash burn, since the company seems to be in a good position to continue to fund its growth. Readers need to have a sound understanding of business risks before investing in a stock, and we've spotted 2 warning signs for Kura Sushi USA that potential shareholders should take into account before putting money into a stock.

If you would prefer to check out another company with better fundamentals, then do not miss this free list of interesting companies, that have HIGH return on equity and low debt or this list of stocks which are all forecast to grow.

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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.