Krispy Kreme

Suggested Questions for Case 7

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.?

* Looking at the financial statements for Krispy Kreme the firm’s financial health is not good, and the current condition is troubling.

* The large amount of growth of the company in the years 2003 and 2004 have had a negative effect on Krispy Kreme. The store growth led to several different affects that can be found when analyzing in the financial statements.

* First and foremost as pointed out throughout the case assets are greatly overstated due to the reacquired franchise rights account. These have come from purchasing a struggling seven store franchise in Michigan This account stood at 175,957,000 on Feb 1 2004.. KK did not amortize these assets which greatly understates amortization expenses on the income statement. This understatement leads to a a overstatement of net income.

* From three months ended in 2004, we see a negative net income due to the loss incurred from the divestiture of Montana mills.

* Secondly the amount of stock holders equity has risen greatly with the expansion of KK. Since 2001 the amount of common stock shares have risen by 209,417,000 a 246% increase from the total 85,060,000 shares in 2001. This has also driven up retained earnings.

* Also in the high growth years of 2003 and 2004 debt has increased significantly. In the balance sheet long term debt has doubled since 2000. Also KK has incurred large amounts of revolving lines of credit 87,000 as of Feb 1. 2004. The company did not have over 8,000 of this account from 2000 to 2003.

* In my opinion although revenues have increased significantly over from 2000 to 2004, the increase is not significant enough when also considering the increase in the actual number of stores. The number of stores has increased approx. 110% since...