Case Study

1366 Words Aug 3rd, 2011 6 Pages
Krispy Kreme Doughnuts Case Study Solution
Financial Statement Analysis
The Krispy Kreme Doughnuts case study solution solves the case on financial statement analysis. The structure of the solution is outlined below and answers the questions included in the outline
Krispy Kreme Doughnuts, Inc. Background
Corporate Profile
Company Stores
Domestic Franchise
International Franchise
Supply Chain Business Segment
Problem Statement
What is the Problem?
How do you know it is a Problem?
Common Case Study Questions
#1 Who is the decision maker, and what are their responsibilities?
#2 What is the issue and its significance?
#3 Why has this issue risen and why is
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Krispy Kreme has experienced dramatic growth over the past 5 years based on their income statement. Every line on the income statement has grown rather impressively. Revenues have grown from $220M to $666M and net income has grown from $6M to $57M. Based on the income statement, Krispy Kreme is doing very well.
The balance sheet of Krispy Kreme looks very similar to the income statement. The majority of line items have experienced great growth. On the asset side of the balance sheet Krispy Kreme has eliminated their long-term investments and its tangible assets have increased from $0 to $176M. The increase of intangible assets was due to their aggressive accounting treatment for franchise acquisitions.
On the liabilities and equities side, the most noticeable aspect is the revolving line of credit spike in 2004. Revolving lines of credit are typically used to provide liquidity for a company’s day-to-day operations so this is very concerning.
2. How can financial ratios extend your understanding 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?
Financial ratios can be used for a quick comparison to other companies in the industry and to the same company over time. They allow you to ignore the numbers and focus on their relationships.
The liquidity ratios have increased dramatically over the last few years. This

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