We're Not Very Worried About Kura Sushi USA's (NASDAQ:KRUS) Cash Burn Rate

There's no doubt that money can be made by owning shares of unprofitable businesses. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

So, the natural question for Kura Sushi USA (NASDAQ:KRUS) shareholders is whether they should be concerned by its rate of cash burn. In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

View our latest analysis for Kura Sushi USA

SWOT Analysis for Kura Sushi USA

When Might Kura Sushi USA Run Out Of Money?

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. In February 2023, Kura Sushi USA had US$22m in cash, and was debt-free. Importantly, its cash burn was US$14m over the trailing twelve months. That means it had a cash runway of around 19 months as of February 2023. 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?

Notably, Kura Sushi USA actually ramped up its cash burn very hard and fast in the last year, by 152%, signifying heavy investment in the business. While that certainly gives us pause for thought, we take a lot of comfort in the strong annual revenue growth of 52%. 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.

Since it has a market capitalisation of US$719m, Kura Sushi USA's US$14m in cash burn equates to about 2.0% 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.

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

On this analysis of Kura Sushi USA's cash burn, we think its revenue growth was reassuring, while its increasing cash burn has us a bit worried. Based on the factors mentioned in this article, we think its cash burn situation warrants some attention from shareholders, but we don't think they should be worried. Separately, we looked at different risks affecting the company and spotted 3 warning signs for Kura Sushi USA (of which 1 is a bit unpleasant!) you should know about.

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.