Krispy Kreme Inc Case Study Essay

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Krispy Kreme Doughnuts, Inc.

1. What can the historical income statements (case Exhibit 1) and balance sheets (case Exhibit 2) tell you about the financial health and current condition of Krispy Kreme Doughnuts, Inc.?

The company’s financial performance looks quite good at the end of Feb 1, 2004. From the exhibit 1, income statement, we can see that Krispy Kreme was growing from the year ended Jan 30, 2000 to the year ended Feb 1, 2004. Total revenue increased significantly 202% from US$ 220,243 thousands in Jan 30, 2000 to US$ 665,592 thousands in Feb 1, 2004. Net income increased 858% from US$ 5,956 in Jan 30, 2000 to US$ 57,087 thousands in Feb 1, 2004. The balance sheet in exhibit 2, looks as good as the income statement in
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As Wall Street Journal stated, Krispy Kreme grew too quickly and diluted its cult status by selling its doughnut in too many outlets. They could not anticipate when the demand decreased due to low-carbohydrate diet trend issues. It can be seen clearly that interest expenses also increased for the year ended Feb 2, 2003 to the year ended Feb 1, 2004 as the debt increased.

From the balance sheet, we see that account receivable and account receivable from affiliates had risen significantly since 2000. In my opinion it was caused by deteriorating financial performance of Krispy Kreme’s affiliates so that Krispy Kreme gave them extension to repay their bills. We can also see that inventory increased since 2000. In my opinion, it was not good since inventory could be obsolete. It would decrease inventory turnover. For asset held for sale, there was a significant decreased from Feb 1, 2004 to May 2, 2004 due to the disposal of Montana Mills. This was the main factor for decreasing the current asset in that period. Krispy Kreme overstated its intangible assets (reacquired franchise rights) because they did not amortize it. On the liabilities and equity sides, we see the most noticeable account is revolving lines of credit that increased from 0 in 2002 to US$ 87 million in 2004, but later decreased to US$ 72 million in May 2004. Long-term debt, net of current portion also increased to US$ 49.9 million in 2002, and then decreased
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