Krispy Kreme Case Study

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INTRODUCTION The Krispy Kreme, Inc. case investigates the contributing factors that caused this particular darling of Wall Street’s stock to suddenly plummet more than 80% in 2004. In the year 2000, Krispy Kreme went to public and boasts iconic status by became the hottest brand in America. Less than a year after its initial public offering, the company’s shares were selling for 62 times earnings. However, in 2004 the market was shocked by the company’s stocks that plummeted more than 80% over the following 16 months. For the first time in its history, Krispy Kreme made three major adverse results. First announcement is the company told investors to expect earnings to be 10% lower than anticipated, claiming that the…show more content…
Therefore, it implies that this company’s current assets are 3.25 times their current liabilities. According to Business Dictionary’s website, a current ratio of 2:1 is considered desirable in most sectors. Thus, Krispy Kreme’s current ratio in 2004 which is 3.25 times exceeding 2 is considered to be acceptable. This clearly shows that the company has an excellent liquidity management and higher ability to meet their financial obligation. As for the quick ratio, the desirable range is 1.1 and this ideal range is considered satisfactory by lenders and investors. Apparently, we can see from the above bar chart that the quick ratio is consistently increased for 2000 to 2004. It recorded as 2.72 times in 2004 and it is eventually exceeding the acceptable quick ratio which is 1.0. This result indicated that the company has high ability to meet its current obligations from its liquid assets excluding the inventories. Liquidity Ratios for Quick Services Restaurants at End of FY2003 [pic] From the graph above, we can see that both quick ratio and current ratio for Krispy Kreme are the highest compared to other firms in the quick-service restaurants’ industry. This shows that this particular company has did very well in managing their liquidity. However, this results also shown that the company might not utilise their current assets efficiently. A high liquidity ratio is not necessarily

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