Case Study 1:- Krispy Kreme Doughnuts inc

Maytham Hussein Saeed

Question 1

Is Krispy Kreme financially “healthy”? What do the statement show, what do the ratio show?

Answer

Based on the Common Sized Financial Statement of Limited Service Restaurant Averages and Krispy Kreme (KKD) the value of KKD’s cash and equivalents is 3.1 and its lower that the 3 years industry average’s value of 12.8 in 2001, 12.4 in 2002 and 13.7 in which is not a good sign because it show company has low cash in their hand compared to industry benchmark. This is due to the low in sale especially cash sale that will lead to low cash collected from their sale. Although their cash turnover (CTO) that increase back to …show more content…
In comparison with 3 years industry average, total current liabilities in 2003 (8.1) that consist of notes payable, current maturity long term debt, trade payables, income taxes payable and other current liabilities show lower value compared to the 3 years industry average where in 2000 is 34.1, in 2002 is 36.1, and in 2003 is 36.4 which mean KKD has low short term financing to finance their daily operation. This is good because it show KKD do not depend too much on short term debt to finance their operation.
Long term debt of KKD based on common sized financial statement is 7.3 in 2003 and too low compared to the 3 years industry average where in 2001 is 40.2, in 2002 is 45.6 and in 2003 is 41.9 while shareholder’s equity for 2003 is 68.4 is too much higher than the 3 years industry average are 20.9 (2001), 9.9 (2002), and 12.9 (2003) which this show that in comparison with industry, KKD is depending their financing using shareholder equity instead on long term debt to finance their assets and this is contradict to the industry that rely more on long term debt compared to shareholder’s equity. This proven by looking at KKD debt to equity ratio (DTOE) and debt to capital (DTOC) ratio that show the decreasing from 47.96% in FY Jan 2000 and 19.46% in FY Feb 2003 to 11.26% in FY Feb 2004 for DTOE and decrease from 32.41% in FY Jan 2000 and 16.29% in FY Feb 2003 to 10.12% in FY Feb 2004 for DTOC which it show that KKD is increasingly