KRISPY KREME Essay

1. What idler the historical income statements ( gaucherie show 1) and counterbalance sheets (case Exhibit 2) tell you about the financial health and current cast of Krispy Kreme Doughnuts, Inc.?The historical financial statements can tell us a set about the financial health and condition about Krispy Kreme or any(prenominal) other attach to. By utilizing some(a) key financial symmetrys we can deposit how the company compares year eachwhere year as intumesce as against rivals in many ?different dimensions. These dimensions include short term solvency, or its major power to meet its immediate obligations, long term solvency, or its ability to manage debt leverage, asset management, or its ability to utilize company assets to name improvement, profitability, or its ability to generate a favorable bottom line, and commercialize valuation measurement, or its general company value in the market compared to book value or earnings.2. How can financial proportionalitys ext end your taking into custody of financial statements? 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?As mentioned above financial ratios can really give an analyst a look into how effective, efficient, and profitable a company is and has been in the past.In exhibit 7, different ratios bring up different questions. The cause of the current ratio is a bit enigmatical to me and begs the question, why does it continue to grow? Krispy Kreme has by far the highest current ratio in the industry, and it step forwards as though some of the biggest competitors have current ratios at or below 1. Although it is good to have short term solvency, too high of a ratio could be a sign of disoriented opportunities for investment. What else could Krispy Kreme be doing with its liquid assets that might garner increase profitability that ostensibly others in the industry are acting on?The next ratio t hat interests us is the asset to equity ratio, or the equity multiplier factor. This ratio is an exponent of how the company manages leverage. The higher(prenominal) the ratio, the more of a percentage of operations is funded by equity. Krispy Kremes equity multiplier has been relatively consistent since 2001, but is vindicatory below par with most of its competitors. What this means to us is that Krispy Kreme is not as effective in utilizing leverage to do good the company as some of its competitors which doubles up on the previous question asked. What else should Krispy Kreme be doing, or investing in to improve efficiency and performance.Total asset perturbation is an important ratio to look at because it is an indicator of how well a company utilizes its assets to generate sales. The first thing that we noticed is that Krispy Kremes make out asset turnover ratio decreased every year from 2000-2004. This speaks to an increase in inefficiency in the use of asset to generate sales. It should however be noted that it is typical that as companies grow, it is difficult to maintain a higher total asset turnover ratio. That notation is exemplified when you look at the competitor ratios. The biggest competitors like McDonalds and Wendys have similar if not lower ratios. Our overall concern is that none of the other competitors had ratios that low and we did not feel that Krispy Kreme was or is anywhere near the size of McDonalds or Wendys. This raises the concern that even though the company is expanding and acquiring new assets, it is not effective in translating the issue into sales.Finally, and perhaps most importantly, we took a look at roe, or income tax return on equity. This ratio gives an idea of the profitability of the company as well as a return that an investor would expect on his or her investment. Although Krispy Kreme has benefited from static ROE over the period of 2000-2004, it is sub-par compared to its competitors. What would make Krisp y Kreme more attractive to investors, if its ROE is below average in its own industry?To look a little further into some of the statements and ratios, we did a DuPont analysis for Krispy Kreme and several of its competitors. to each one ofthe individual components have been previously discussed, but it is interesting to compare them in concert to see how three of the most important aspects of the business have changed over time. Specifically it is worth noting that Profit Margin has increased significantly every year since 2000. What this means is that Krispy Kreme has gotten get around every year at bout each sale dollar into net income.3. Is Krispy Kreme financially healthy at year-end 2004When looking at the 2004 DuPont analysis, you see that not only has profit margin increased every year, but it is more than 2% better than the industry average. That being said, Krispy Kreme does not utilize its assets as efficiently as its competitors. This potentially troubling because of t he fact that they have gone through belligerent reaping in stores recently. Is this an indication that these stores are not generating the sales necessary to justify the investment, or at least as well as its competitors might be able to? Finally the equity multiplier comes in below the industry average. To us this means that Krispy Kreme does not utilize its leverage as effectively as the competition. Perhaps it would be to Krispy Kremes benefit to increase leverage and invest in order to increase growth and earnings in a similar manner to its competition. Overall, we believe that Krispy Kreme is evenhandedly financially healthy as of the year end 2004. The profitability of the company is well above industry average, and the asset turnover and equity multiplier ratios are not drastically different from industry averages.4. In escape of your answer to question 3, what accounts for the firms recent share charge defy?There was a decline in the share toll because, firstly, the company said to expect fewer earnings because of the low-carbohydrate diet trend and also they had close down few underperforming shops, which was a result of their raptorial store expansion. The main cause of the recent share price decline is when the financial scandals became public. As a result, investors lost confidence in the company.5. What is the antecedent of intrinsic investment value in this company? Does this source appear on the financial statements?