Krispy Kreme Case

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

Historical income statements and balance sheets can tell us about a company's spending, debt, and how the company has done in previous years financially . This lets investors and other interested in the finacials of the company to make predictions about the financial health of the company for the future. The balance sheet is specifically a small picture of any companies assets and liabilities while the income statement gives a more detailed description of the company's current financial standings. The balance sheet and income statements for Krispy Kreme Doughnuts look very similar in a lot of aspects. Just from looking at the balance sheet you can see that most have the line items show a lot of growth. Specifically on the assets side you can seee that total assets have increased from 104,958 to 661,608 which is a 600% increase over only four years. In fiscal year 2004 the company eliminated long term investments and increased intangible assets from 0 to 176,078. This dramatic increase can be attributed to how they handled acquisitions. The part of the balance sheet that should be an alarm for investors and those of finacial interest is the companies liabilities and equity. The line I was specifically concerned with was Revolving Lines of Credit. In two years this number went from 0 to 87 million. This is alarming because revolving lines of creit usually have to do with liquidity for a company's day to day operations. When looking at Krispy Kreme's income statement there are three big things that stick out, the increase in revenue, net income for the company, and the operating expenses. These three items would indicate that the company is in good financial standing. The indication of good finacial standing could be caused by their acquisition of the Mountain Mills brand and opening all the new franchises that they did.

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

Using financial ratios can allow anyone to understand a company's short and long term wealth, their asset management, and market value. The liquidity ratios for Krispy Kreme give us some insight to the short term wealth of the company and the company's ability to cover short term expenses. In Janu 2001 they recorded a current ratio of 1.39 and as we know and current ratio greater than 1 shows that a company has high liquidity and can pay of short term liabilites on time. Over the next given four years the company's quick ratio and current ratio continue to increase. The quick ratio lets creditos compare the current assets minus inventory over current liabilities. Overall we can make the assumption that the company is handeling liquidity of assets well which can be attributed to an increase in their assets including stores, equipment, and inventory. Compared to Exhibit 9 the liquidity ratios of Krispy Kreme seem much healthier than the other firms listed. Krispy Kreme is listed as 3.25, McDonald's as 0.76, Dominos as 0.99, Starbuck's as 1.52, Wendy's as 0.88, and Sonic as 0.92. These numbers raise questions about how Krispy Kreme was doing accounting and how their current ratio was so much higher than the others.

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