KRISPY KREME DOUGHNUTS, INC.
This report will provide the general overview of the financial status for the Krispy Kreme Doughnuts, Inc. This is a company whose future smelled sweet within the beginning of the first millennium when it was started. The company mainly traded in baking doughnuts to its customers. In April 2000, Krispy Kreme stunning performance made it to be dubbed by the fortune magazine as the hottest brand in America that is due to the fact that the company had gained enough moment in less than a year and her share were selling for 62 times earnings. However, at the end of 2004 the Krispy Kreme Doughnuts company begun to face some financial problems. The company stock price declined drastically that is from its’ peak in 2003 August where the company stock price fell by more than 80% in span of sixteen months. This drastic fall in the company financial performance made different investors to question the company legibility and even some of the factors that might have resulted to this since the company had already been perceived to fall in the rank of the next Starbucks.
The Krispy Kreme Company was acquired by Vernon Rudolph in 1937. It was instituted as a single doughnut shop. This company is located in a place called Winston – Salem which is situated in North Carolina. Vernon Rudolph acquired the skills that he used in the cooking from a French chef in New Orleans. Beatrice Foods then bought the company after Vernon Rudolph had passed on in 1973.She then expanded the company to more than 100 locations. Beatrice also initiated the production of other products such as sandwiches and soups. Other achievement that were gained by her were that she managed to reduce the cost in production by substituting cheaper ingredients in the doughnut mixture and that she also managed to change the appearance of different stores. The business performance started to decline and Beatrice placed it up for sale that was by 1980s. The Krispy Kreme Company was then taken up by Joseph McAleer a member of the franchisees group. Joseph brought back the company traditional logo and the original doughnut formula. Through his efforts he managed to make the Krispy Kreme to debt – free. In 1998 Scott Livengood become the Chairman and the CEO. The course that he took for the company is that he made it public.
The company financial health and position will be determined by the Company’s’ assets, liability and the shareholder equity. For this report will use the concept of current ratio which is obtained by dividing the total current asset by total current liabities. When the evaluation is done the current ratio tend show some consistency in the ratios indicating that KK Doughnuts was not in a bad financial health as per the exhibit 1 and exhibit 2. The financial ratios will help extend the understanding of one with regards to the financial statement in that it when used by a particular individual he or she will be able to evaluate the relative strength of a particular company. The time series questions that would arise from the exhibit 7 are: whether the company is able to meet the long term solvency that is with regards to the current economy, the value that should be obtained for this particular case should be less than 1 to be considered to have fallen within the normal limits but in this particular exhibit the debt to equity ratios values are much far more than 1 thus raising the questions of normalcy. The questions that would be raised by exhibit 8 and 9 is whether the company is performing well overtime and this will be answered by looking at the return on assets, whether the company assets are being used effectively and this will be evaluated by looking inventory turnover ratio among others. The Krispy Kreme can thus be concluded to not be healthy as at the end of 2004 because its stock price had declined. The recent share decline was seen to be by 80%. The source of the intrinsic investment value in the Krispy Kreme is from the sale of the glazed doughnut which was represent by 60% of the sales for the Krispy Kreme. This intrinsic value is thus well represented in the income statement because it accounts to 60% of the glazed doughnut sales.
In conclusion this company is unique just as the rest that is from the time of its formulation, it developed to fame for its factory store kind of business. Moreover, as it continued to be operations it faced some challenges, an example is the 10% decrease in the earnings that resulted from the recent U.S diet changes. From the research it is also evident that the company was involved in misappropriation of funds that is it recorded the cost of purchase of the franchise as an asset that is intangible and yet they did not amortize these intangible assets .It also recorded the interest that it paid from the own franchise wrongly that is as interest income among others and this makes it to be just like other form business.
KRISPY KREME DOUGHNUTS, INC.