Krispy Creme

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 Kermes doughnuts. Inc.?

The historical income statement from Krispy Kreme Doughnuts shows the annual results to be a consistent growth from Jan 2000 through Feb 2004 statements. We see the final net income growth of 2003 is reported to be almost 10 times more then it was in 1999 fiscal year. However, “equity loss in joint ventures” is also increasing in negative figures for four consecutive years from 2001. This suggests that the directions of the company development in other business areas aren’t successful and that it has impacted the company’s income. Also, the restricting impairment charges and closing costs for 2004 quarters shows signs of operational inefficiencies. Examining the balance sheets of Krispy Kreme Doughnuts total assists look good in general from Jan 200 through Feb 2004 filing; however there are some concerning later-year shifts. For instance, cash and cash equivalents between Feb 2003 and Feb 2004 filings dropped considerably. Another suspicious indication is asset held for sale in Feb 2004 was up almost 37 million. Since Krispy Kreme did not amortize their reacquired franchise rights, goodwill, other intangibles it was an overstated asset in 2002 fiscal year to 2003 therefore their entry skyrocketed from 49 to 175 million respectively. Like assets the total liabilities and shareholders equity looks impressive, but let’s break it down into components. For instance, in 2004 short-term debt and revolving line of credit are at zero, but the long term revolving lines of credit increases from 7.2 million in 2003 to 87 million in 2004. Also, long-term debt, net of current portion increased to 49.9 million in 2003 and the decreased about a million in 2004. The companies trend in taken large long term debt maybe the cause of large expenses in late years. In the shareholders equity...