Kura Sushi USA (NASDAQ:KRUS) Is In A Good Position To Deliver On Growth Plans

We can readily understand why investors are attracted to unprofitable companies. By way of example, Kura Sushi USA (NASDAQ:KRUS) has seen its share price rise 293% over the last year, delighting many shareholders. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

So notwithstanding the buoyant share price, we think it's well worth asking whether Kura Sushi USA's cash burn is too risky. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

View our latest analysis for Kura Sushi USA

When Might Kura Sushi USA Run Out Of Money?

You can calculate a company's cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. When Kura Sushi USA last reported its balance sheet in August 2021, it had zero debt and cash worth US$40m. In the last year, its cash burn was US$21m. Therefore, from August 2021 it had roughly 23 months of cash runway. While that cash runway isn't too concerning, sensible holders would be peering into the distance, and considering what happens if the company runs out of cash. The image below shows how its cash balance has been changing over the last few years.

How Well Is Kura Sushi USA Growing?

It was fairly positive to see that Kura Sushi USA reduced its cash burn by 22% during the last year. And considering that its operating revenue gained 44% during that period, that's great to see. We think it is growing rather well, upon reflection. 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.

How Easily Can Kura Sushi USA Raise Cash?

There's no doubt Kura Sushi USA seems to be in a fairly good position, when it comes to managing its cash burn, but even if it's only hypothetical, it's always worth asking how easily it could raise more money to fund growth. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. Many companies end up issuing new shares to fund future growth. By comparing a company's annual cash burn to its total market capitalisation, we can estimate roughly how many shares it would have to issue in order to run the company for another year (at the same burn rate).

Kura Sushi USA's cash burn of US$21m is about 3.0% of its US$711m 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.

So, Should We Worry About Kura Sushi USA's Cash Burn?

As you can probably tell by now, we're not too worried about Kura Sushi USA's cash burn. For example, we think its revenue growth suggests that the company is on a good path. Its cash burn reduction wasn't quite as good, but was still rather encouraging! After taking into account the various metrics mentioned in this report, we're pretty comfortable with how the company is spending its cash, as it seems on track to meet its needs over the medium term. Its important for readers to be cognizant of the risks that can affect the company's operations, and we've picked out 2 warning signs for Kura Sushi USA that investors should know when investing in the stock.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies insiders are buying, and this list of stocks growth stocks (according to analyst forecasts)

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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.