Krispy Kreme Doughnuts Case Study
Krispy Kreme was the hottest brand in America in 2003, however, its stock price plummeted more than 80% in the next 16 months. What had happened to this company? Why investors suddenly fleeing the popular Krispy Kreme? Answer following questions will help us find the solutions.
From the historical income statement and balance sheet, we notice that, from 2000 to 2004, the KK grew very fast and its net income increased substantially. For example, form 2003 to 2004, KK’s net income increased by 71%. In turn, the company experienced an increasing EPS which was rose from 0.15 to 0.92, and the price of company’s share jumped up by 120%. The historical income statement indicates that Krispy Kreme has a good profitability, a high market value and a high return. At the same time, the balance sheet reflects that the total asset grew very fast which was caused by the increase in accounts receivable, inventories and intangible asset. The company’s equity increased in an astonishing speed. In Feb. 2004, the shareholders’ equity is almost 10 times the equity in Jan.2000. The increasing equity and also indicates that Krispy Kreme was hot and successful in stock market. However, according to the recent income statement, KK’s profitability turned down sharply. Compared with the same periods in 2003, KK’s net income was deducted drastically by increased expense, discontinued operations and impairment charges &closing costs which arose in 2004. For instance, the company even had a 24 million net loss and a negative EPS form Feb, 2004 to May,2004. As a result, the EPS in Aug, 2004 was reduced to the lowest level in recent years. Those changes indicate that KK face serious operating problems which impaired the company’s profitability. In the recent balance sheet, we noticed that account receivable, notes receivable as well as inventory are the main part of current asset. What’s more, intangibles have become the major long-term asset. The...
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