Krispy Kreme Doughnuts, Inc. Essay

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Case #7
Krispy Kreme Doughnuts, Inc.


FNCE 4620 - Financial Analysis and Policy

Dr. Gregory

Group 1

Chris Suggs

Alex Stephens

Florian Fourmanoy

Jonathan Colangione

Table of Contents

1. Executive Summary

2. Problem Statement

3. Data Analysis

4. Key Decision Criteria

5. Alternatives Analysis

6. Recommendations

7. Action and Implementation Plan

1. Executive Summary:

Krispy Kreme Doughnuts was a successful privately owned business since 1937. In 1982 a group of franchises bought back the company from Beatrice Foods for $24 million, and reintroduced the old recipe of doughnuts and their “hot doughnuts now” system. In 1998 Scott Livengood became Krispy Kreme’s new
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KKD divested Montana Mills chain of 28 bakery stores acquired in January 2003 for $40 million in stock. They would take a charge of $35 to $40 million in the 1st quarter. Also closing 3 new KKD “hot doughnut and coffee shops” resulting in a charge of $7 to $8 million. After these issues came to light, KKD’s shares closed down 30%, at $22.51 a share. Also in this time the SEC announced an informal investigation which caused KKD’s shares to fall another 15%, closing at $15.71 a share. The SEC filings were complete and KKD revised their financial statements. By the end of the next day the stock price was less than $10 a share.

From Exhibits 7 & 8, quick and current ratios grew steadily over the years reflecting ability for KKD to repay their short-term debt. These ratios when compared to their competitors were above the average. The leverage ratios were lower than most of the other companies showing that KKD did not have enough invested in long term debt.

KKD’s activity ratios were also lower than most of the other competitors. Receivables turnover dropped in 2004 due to the increase in accounts receivables and slowing sales. Asset turnover dropped by about .25 a year from 2000 to 2004, and this shows that their assets were increasing too much in respect to their sales.

From Exhibit 9, we can see that KKD had almost double
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