Krispy Kreme Doughnuts: Financial Analysis and Forecasting
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 historical financial statements can tell us a lot about the financial health and condition about Krispy Kreme or any other company. By utilizing some key financial ratios we can determine how the company compares year over year as well as against competitors in many ?different dimensions. These dimensions include short term solvency, or its ability to meet its immediate obligations, long term solvency, or its ability to manage debt leverage, asset management, or its ability to utilize company assets to make profit, profitability, or its ability to generate a favorable bottom line, and market valuation measurement, or its overall company value in the market compared to book value or earnings.
2. How can financial ratios extend your understanding of financial statements? What questions do the time series of ratios in case Exhibit 7 raise? What questions do the ratios on peer firms in case Exhibits 8 and 9 raise?
As mentioned above financial ratios can really give an analyst a look into how effective, efficient, and profitable a company is and has been in the past.
In exhibit 7, different ratios bring up different questions. The trend of the current ratio is a bit puzzling to me and begs the question, why does it continue to grow? Krispy Kreme has by far the highest current ratio in the industry, and it appears as though some of the biggest competitors have current ratios at or below 1. Although it is good to have short term solvency, too high of a ratio could be a sign of missed opportunities for investment. What else could Krispy Kreme be doing with its liquid assets that might garner increase profitability that seemingly others in the industry are acting on?
The next ratio that...
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