The case “Krispy Kreme Doughnuts” provides detailed overview of Krispy Kreme’s income statement, financial stability, balance sheet, ration analysis, competitor analysis, debt issues and income analysis. Aggressive growth is highlighted as well. The years of 2000-2004 seem to be rather successful for Krispy Kreme as company’s revenues and operations increased dramatically up to $100 million in 2004 compared with $10. 8 million in 2000.
Nevertheless, if looking deeper, the balance sheet of Krispy Kreme is not as positive as it seems from the first glance. A troubling trend is observed during the years of 2003-2004. Despite revenue had been increasing, operating income had been decreasing during 2003-2004. It means that the company can’t be labeled as healthy because its financial position is unstable. Decrease in operating income is argued to be the result of increase in capital spending and working capital.
Moreover, cash flow appeared to be negative because the year of 2004 was marked by increases in receivables, franchise buybacks and increases in inventories. Further troubling signs are low activity ratios and high liquidity ratios. Analysis of financial statement shows that company should pay thorough attention when assessing own financial stability, visibility and profitability. Estimation of both quantitative and qualitative business aspects gives an ability to estimate future cash flows and to see whether the company is reliable.
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Krispy Kreme doesn’t seem to be a good company for investing or having long-term relations because its long-term debts have increased, whereas operating cash flows has been dramatically falling. The future of the company is argued to be dubious as franchisees are selling. Company’s stocks are falling and the company becomes weaker and weaker. The only positive moment is that Krispy Kreme still has one off balance sheet that underlines 10% intrinsic value. Read about Doughnut Industry
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