Krispy Kreme Doughnuts, Inc.
Case Study in Corporate Finance Krispy Kreme Doughnuts, Inc. Presented by – Group A2
Timeline
Krispy Kreme Doughnuts, Inc. Ratio Analysis Liquidity Ratios As shown in Exhibit 1, quick ratio for Krispy Kreme gradually rose from 1.05 to 2.72, during 2000 to 2004. And current ratio changed with the similar pattern. Generally, a quick ratio of 1 is considered good in most industries. As for Krispy Kreme, the quick ratio is always higher than 1, and the highest point is 3.25 in 2004. This means that the company had good liquidity. However, on May 2 , 2004 just about the time Krispy Kreme announced adverse results, both the quick ratio and the current ratio of the company decreased. From the Krispy Kreme’s balance sheets we can see that within three months the company’s current assets decreased by 22,899, while inventories increased. And current liabilities increased 9813, as book overdraft and accrued expenses increased remarkably. Compare to other quick-service restaurant as per exhibit 2, Krispy Kreme’s quick ratio and current ratio both are much higher. While the average liquidity ratios of these 12 companies are 0.795 and 1.170, which are lower than half of the ratios from Krispy Kreme. Thus, the Krispy Kreme held much more current assets than needed. And the current assets may lose efficiency.
Leverage Ratios As shown from Exhibit3&4, after 2000, both Krispy Kreme’s debt-to-equity ratio (D/E) and debt-to-capital ratio (D/C) are in a low level, which is better. It’s more notable when compared with other quick-service restaurant. The average debt-to-equity ratio and debt-to-capital ratio are 53.41% and 64.18%. Krispy Kreme’s debt-to-equity ratio and debt-to-capital ratio are 11.26% and 10.12%. Krispy Kreme held less debt compared to shareholders’ equity. So the company raised money mainly from equity financing than debt financing. Activity Ratios From Exhibit 5, we can gather that the inventory, receivables and asset turnover from 2000 to 2004 are
Timeline
Krispy Kreme Doughnuts, Inc. Ratio Analysis Liquidity Ratios As shown in Exhibit 1, quick ratio for Krispy Kreme gradually rose from 1.05 to 2.72, during 2000 to 2004. And current ratio changed with the similar pattern. Generally, a quick ratio of 1 is considered good in most industries. As for Krispy Kreme, the quick ratio is always higher than 1, and the highest point is 3.25 in 2004. This means that the company had good liquidity. However, on May 2 , 2004 just about the time Krispy Kreme announced adverse results, both the quick ratio and the current ratio of the company decreased. From the Krispy Kreme’s balance sheets we can see that within three months the company’s current assets decreased by 22,899, while inventories increased. And current liabilities increased 9813, as book overdraft and accrued expenses increased remarkably. Compare to other quick-service restaurant as per exhibit 2, Krispy Kreme’s quick ratio and current ratio both are much higher. While the average liquidity ratios of these 12 companies are 0.795 and 1.170, which are lower than half of the ratios from Krispy Kreme. Thus, the Krispy Kreme held much more current assets than needed. And the current assets may lose efficiency.
Leverage Ratios As shown from Exhibit3&4, after 2000, both Krispy Kreme’s debt-to-equity ratio (D/E) and debt-to-capital ratio (D/C) are in a low level, which is better. It’s more notable when compared with other quick-service restaurant. The average debt-to-equity ratio and debt-to-capital ratio are 53.41% and 64.18%. Krispy Kreme’s debt-to-equity ratio and debt-to-capital ratio are 11.26% and 10.12%. Krispy Kreme held less debt compared to shareholders’ equity. So the company raised money mainly from equity financing than debt financing. Activity Ratios From Exhibit 5, we can gather that the inventory, receivables and asset turnover from 2000 to 2004 are