Liquidity Ratio

Topics: Financial ratios, Financial ratio, Balance sheet Pages: 11 (4019 words) Published: April 18, 2013
Krispy Kreme Doughnuts starts the company business with a high reputation, good business prospective of growing industry and a high-ranking brand. As one of the hottest brand in America, the Hot Doughnut concept, it was a new popular and innovation idea brought the company performance to the top of the hills. However, the company management had faced with some failure and problem in their financial status and fundamentals. It leads to the stock price and the expectation plummeted. Consequently, the business was languished in the Doughnuts industry. In this case study, our main purpose is to analyze the company financial statements and investigate the effects of financial analysis announcements on the stock price from 2000 to 2004. Besides that, we concerned about the financial management or strategy in the company and how are they sustaining their company growth and expected earnings in the stock market. We also discuss about the company financial analysis and competition in the industry. 2.0Case Study Summary

Krispy Kreme Doughnut operation was started in 1937 when the founder of Kripsy Kreme, Vernon Rudolph began making doughnuts from a special recipe he bought from a French chef. Then, Krispy Kreme was so well-known and it expanded from a wholesale enterprise to an addition of Krispy Kreme’s retail operations and franchising. Rudolph focused on excellent quality of doughnuts and customer service. The result was always good when it was under the control of Rudolph. After Rudolph’s death, Krispy Kreme was acquired by Beatrice Foods and its priority was to earn profit. Beatrice encouraged additions to the menu and changed the original recipe and logo of Krispy Kreme to cut cost. Unfortunately, the business went down Beatrice decided to sell it. In 1982, the new owner of Krispy Kreme, Joseph McAleer bought Krispy Kreme by using leverage. Joseph maintained back the original logo and recipe of Krispy Kreme. One of the priorities of Joseph and Krispy Kreme focused on hot and fresh doughnut. In 1989, Kripsy Kreme was free from debt and began to expand. In 1996, doughnuts and added branded coffee were their main focus. In year 2000, Kripsy Kreme went public and the initial share price reached $40.63. After going public, the corporation was planning aggressively to increase the number of stores and enter international markets. The revenues of Krispy Kreme Doughnuts were generated from on-premises sales, off-premises sales, manufacturing and distribution of product mix and machinery and franchise royalties and fees. In May 2004, Krispy Kreme announced three major adverse results for the first time as a public company. Firstly, the company suffered loss due to the trend of low-carbohydrate diet. Secondly, it planned to divest Montana Mills and would be charged. Thirdly, the company planned to close three of its new Hot Doughnut and Coffee Shops. These announcements made the shares closed down by 30%. In year 2003, SEC announced that Kripsy Kreme was too aggressive in acquiring franchise. The practice of Krispy Kreme acquiring Michigan franchise was so wrong. The company recorded the interest income on past-due loan from Michigan as immediate profit and the purchase cost on Michigan as intangible asset and did not pay off. In the same time, the company was being charged due to the quitting of the Michigan’s top executive. The shares of Krispy Kreme fell for another 15% due to the announcement from SEC. SEC published another report stated that Krispy Kreme was facing the problem of growing too fast and the company was too rely on the profits made from manufacturing and distribution of franchise equipment. In year 2001, the analysts were so optimism towards Krispy Kreme stocks. However, the analysts became increasingly pessimistic about the stock in year 2004. 3.0 Analysis

3.1 SWOT Analysis
SWOT Analysis report provides a strategic analysis and detailed overview of the business and operations of Kripsy...

References: Arthur, K. J., & Martin, J. D. (2005). Financial Management : Principles and Applications. New Jersey: Pearson Education.
Nordin, S., Zawawi, S. A., Ismail, R., & Ramli, K. A. (2011). Financial Management. Petaling Jaya: Person.
Ross, S. A., Westerfield, W. R., & Jaffe, J. (2010). Corporate Finance : Ninth Edition. New York: McGraw Hill.
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