Krispy Kreme Case Assignment - Draft

FINANCE 533

FINANCIAL MANAGEMENT

WINTER 2011

Case Project #1: Krispy Kreme Doughnuts, Inc.

Go to https://store.darden.virginia.edu, purchase case “Krispy Kreme Doughnuts, Inc.” Case number: UVA-F-1479.

Write a case analysis paper to answer following five questions:

1. What can the historical income statements (case Exhibit 1) and balance sheets (case Exhibit 2) tell you about the financial health and condition of Krispy Kreme Doughnuts, Inc.? KKD reflected to be a relatively healthy firm per their balance sheet, more specifically FY2004 where they had net working capitol of $120,620. However this stature began to decrease as the year progressed – in May 2004, the net working capitol decreased to $87,908. In May total assets decreased by $22,899 and total liabilities increased by $9,813. In August net working capital increased a small amount of $7,526 however total current liabilities continued to increase. Cash flow from assets

2. How can financial ratios extend your understanding of financial statements? The ratios allow for us to better compare KKD’s performance versus other competitors and time. 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? Does it make sense to compare some of the companies to KKD – i.e. Papa Johns? KKD doesn’t make pizza and Papa Johns doesn’t produce doughnuts. Also is it fair to compare KKD to McDonalds – which has more stores globally than KKD – McDonalds has 31,000 stores. How do the other companies operate with their franchisees – how is inventory handled – i.e. how much has to be bought / ordered at one time?

3. Is Krispy Kreme financially healthy at year-end 2004? Refer to PE Ratio. However looking at Exhibit 7, it appears FY2004 that they are pretty financially healthy – they have a decent with 8.58% for their profit margin. This informs us that they do have a good handle at this time controlling their...