Krispy Kreme

What is the Financial Health of Krispy Kreme Doughnuts, Inc.?

From exhibit 8, the liquidity ratios for Krispy Kreme Doughnuts (KKD) were growing strong from 2000 to 2004. The quick and current ratios have been increasing well above 1 and peaked at 3.25. When compared with other quick-service restaurants, KKD’s quick and current ratios are top of the class and 2 times more than others. It indicates that KKD has no issues to continue their operations in the short run. In the long run, KKD’s debt-to-equity ratios were below 20% from 2001 to 2004. When compared with other restaurants, KKD ranked 4th out of the 12 restaurants with the lowest debt-to-equity ratio. This is a strong indication that KKD has very little problem paying off their debts in the long run.

From exhibit 9, KKD’s cash equivalents seems a lot less than other peers, while trade receivables were almost 10 times more. This tells us KKD’s current assets are made mostly of receivables which might run the risk of not collectable. KKD’s intangibles were more than double of other peers, this is contributed by the accounting policy they had for reacquiring franchisee rights. This is mostly likely to be written down and affects the profitability ratios. KKD has very few debt compared to their peers, meaning they are not growing through financing, which is a positive sign. This means the company can borrow money and leverage off via external financing if they believe the interest rate is less than return on debt. Lastly, despite the high operating expenses, KKD’s Profit before taxes is 4 times more than their peers, which means KKD is able to control expenses outside of the operating expenses.

From exhibit 1, KDD’s balance sheet has the “Reacquired franchisee rights” account which has a balance of $175,957,000 at Feb 1, 2004. This account has only existed for the last 3 years, and it has been growing faster than any other figures. In 2004, the balance in this account has surpassed the...