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Krispy Kreme Doughnuts Inc Case Solution

Solution Id Length Case Author Case Publisher
1332 711 Words (3 Pages) Robert F. Bruner, Sean Carr Darden School of Business : UV1369
This solution includes: A Word File A Word File

Starting with the income statement of Krispy Kreme Donuts, the company has shown some outstanding figures in the five years. The revenues are growing at a fast pace. For example, in 2000 company’s revenue grew by 50% from $200 Million in 2000 which was increased to $300 Million in 2001. In 2002, the revenue growth rate was again around 45%. Currently, the company has a revenue $665 Million, which means that over these five years company has utilised its sources in a very effective manner. Earnings per share have also increased significantly starting from $0.15 in the year 2000 and now the company has earnings per share of $0.94. Balance Sheet is also very strong and the assets of the company are maintaining a high growth rate. In the year 2000, the company has assets of around $41 Million and in 2004 company own assets worth of $174 Million.

Following questions are answered in this case study solution

  1. What can the historical income statements (case Exhibit 1) and balance sheets (case Exhibit 2) tell you about the financial health and current condition of Krispy Kreme Doughnuts, Inc.?

  2. How can financial ratios extend your understanding of financial statements? What questions do the time series of ratios in case Exhibit 7 raise? What questions do the ratios on peer firms in case Exhibits 8 and 9 raise?

  3. Is Krispy Kreme financially healthy at year-end 2004?4.    

  4. In light of your answer to question 3, what accounts for the firm recent share price decline?

  5. What is the source of intrinsic investment value in this company? Does this source appear on the financial statements?

Case Analysis for Krispy Kreme Doughnuts Inc Case Solution

2. How can financial ratios extend your understanding of financial statements? What questions do the time series of ratios in case Exhibit 7 raise? What questions do the ratios on peer firms in case Exhibits 8 and 9 raise?

The liquidity ratios of the company are improving tremendously. For example, in the year 2000 the company has a current ratio of 1.05 which has increased to 2.72. This means that the company has improved it ability to meet short term obligations. Leverage ratios such as “times interest earned” is currently 23.15 which shows that for every $1 of interest expense, company has earnings before interest and tax of $23.15. Profitability ratios of the company are also indicating that the company has very efficient operations. For example, the operating profit margin of the company increased from 5% to 15.34% which is huge progress. Trend analysis of the ratios says that the company has able to improve the financial ratios over the last few years. In addition to that, in comparison to the other peer firms in the industry, the financial ratios of the company are also very competitive.   

3. Is Krispy Kreme financially healthy at year-end 2004?

Krispy Kreme is very much financially stable at the end of year 2004. Net income of around $57 Million is a good indicator of the financial health of the company. Moreover, company is also successfully converting its earnings in cash. Cash and cash equivalents of the company are currently worth $20 Million whereas in year 200 the company has cash equivalents of only $3 Million. Moreover, the long term debt of the company is also very stable. Therefore, the growth that the company is generating is organic growth and generating from within the company. It’s a positive aspect for the company that the growth the company is achieving is not based on issuing long term debt using the proceeds to invest in the company.

4. In light of your answer to question 3, what accounts for the firm recent share price decline?

One of the reasons for the share price fall in 2004, is low expectations of earnings to the investors which was 10% less than the expected earnings. Moreover, the aggressive accounting treatment for the franchise acquisition made by Krispy Kreme also raise some concerns among the investor.

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