We're Interested To See How Kura Sushi USA (NASDAQ:KRUS) Uses Its Cash Hoard To Grow

Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. By way of example, Kura Sushi USA (NASDAQ:KRUS) has seen its share price rise 110% over the last year, delighting many shareholders. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

So notwithstanding the buoyant share price, we think it's well worth asking whether Kura Sushi USA's cash burn is too risky. 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). We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

See 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. As at May 2022, Kura Sushi USA had cash of US$36m and no debt. In the last year, its cash burn was US$3.4m. That means it had a cash runway of very many years as of May 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 88% over the last twelve months, which is extremely promising, when it comes to considering its need for cash. And it is also great to see that the revenue is up a stonking 199% in the same time period. Overall, we'd say its growth is rather impressive. 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?

We are certainly impressed with the progress Kura Sushi USA has made over the last year, but it is also worth considering how costly it would be if it wanted to raise more cash to fund faster growth. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. Commonly, a business will sell new shares in itself to raise cash and drive 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.

Since it has a market capitalisation of US$932m, Kura Sushi USA's US$3.4m in cash burn equates to about 0.4% of its market value. 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?

It may already be apparent to you that we're relatively comfortable with the way Kura Sushi USA is burning through its cash. In particular, we think its cash burn reduction stands out as evidence that the company is well on top of its spending. 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. An in-depth examination of risks revealed 1 warning sign for Kura Sushi USA that readers should think about before committing capital to this 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.