NYSE:KKD, A Case Study of Krispy Kreme Doughnuts Inc. Financial Statements

Krispy Kreme Doughnuts was formed in 1933 when Vernon statue maker Rudolph bought a doughnut shop in Kentucky. By 1937 the job had branched into a whole sale operation, supplying local grocery stores. Today, the business is owned by Krispy Kreme franchises and there are approximately 449 factory stores throughout the world.Krispy Kreme first floated on the NASDAQ in 2000 and, with a share price of $40.64, immediately gained a market capitalization of $500 one thousand million. A year later they switched to the NYSE where they now trade under the ticker figure KKD.In order to perform a monetary analysis of Krispy Kreme we will utilize three main fiscal statements the income statement, the statement of cash flow and the eternal rest statement.The Income Statement, or profit and deprivation statement, will allow us to observe how much profit has been generated by KKD and will allow us to observe how profit commensurate the business is. Whereas the income statement reports the r esults from operating(a) the business over a given period of clock time, the balance sheet provides a picture of the firms value at a snapshot period in time by presenting details of its assets, liability and owner equity.Whilst an income statement reports a bon tons profits this is non actually the same as their cash flows. It is therefore important that we similarly look at this when analyzing the monetary health and wellbeing of a company. By looking at the free cash flows we are able to observe how much cash is available to the company after they cast paid for their investitures in operating capital and fixed assets. The free cash will be the amount that is available to redistribute to the owners and creditors.The fiscal reports for Krispy Kreme between the years 2005 and 2007 provoke be found in Appendix A. At first look it is evident that a has been made over the last three years since their 2005 filing. This could be potentially attributed to their quick growth and extension that has necessitated large investments in property, plant, equipment and investments in equity method franchises. The losses, however, choose reduced from $7.2 million in 3rd string 2006 to $798 in the 3rd quarter of 2007 that could indicate an improvement.The operating income, excluding the $21.05 million in depreciation, of Krispy Kreme at the end of the 3rd quarter 2007 was $22.11. The company has reported an investment of 12.63 that their annual report (www.krisykreme.com) attributed to the sale of property and the reacquisition of some of the franchises. In addition to this KKD retired some of their long debt leading to a net loss of $15.48 in financing activities.The statement of cash flows reveal a net credit to impairment and need termination of $268,000 in the 3rd quarter of 2007, a huge shift from the charge of $5.4million of 3rd quarter 2006. Clearly in the latter stages of 2006 a number of stores were closed or the franchises were terminated. The third quar ter 2007 balance sheet shows that KKD had cash of $23 million and a debt of $88 million.In order to fully understand KKDs position in the market we need to understand the data in relative terms, i.e. how is KKD performing in comparison to their competitors or similar companies. An analysis of KKDs financial rations provides us with further insight into their trading operations and can allow us to better highlight their strengths and weaknesses. The debt ratio indicates how much debt KKD are using to pay their assets. KKDs debt ratio discloses that the company has a debt level that matches their level of assets. This is clearly bad news.Furthermore they have interdict earnings per share ratio of -5.45. This EPS ratio is significantly below the industry average of -2.75 will necessitate that it will be extremely difficult to attract new investors as they are unable to oblation earnings on the investment, at the moment they are offering a loss. In addition to this, if the company financials do not pick up and they are forced to default there will be no return for the investors at all.The Return on Sales ratio is currently at .39. This is as well as below the industry average. Such a low ratio indicates that the sales are not similar to the companys current operating expenses.However, on a positive note, the Current Ratio (an index of the firms liquidity as measured by its liquid assets) of 1.71 shows some recovery and present that KKD have the resources to meet short-term obligations.One potential source of this could be cash generated by financing activities that can help to offset the unrewarded investments in finance acquisitions. However, this is a short-term option and will not significantly offset investors concerns.KKD currently has a quick neckcloth turnover and averages 20 days. This indicates that the company is managing their inventory well and is running an efficient operation with minimal waste. In addition to this the turnover in receivabl e is 8 11 days which is much lower than one of their major competitors Starbucks. Their accounts payable turnover is also high relative to Satrbucks but this is probably a direct outcome of their franchise model.KKD as an investment has received a great deal of negative publicity recently and this will undoubtedly have impacted their share price. Accusations relating to their accounting practices and the potential over inflation of profit levels will undoubtedly have lowered investors confidence in the company and has also triggered a number of lawsuits.Through analyzing their current financial status and taking into consideration their ongoing issues with the SEC, I would not invest in this company.Reference PageKrispy Kreme Doughnuts Inc KKD (NYSE) Full Description. Retrieved April 3, 2008, from Reuters FundamentalsWeb rank http//stocks.us.reuters.com/stocks/fullDescription.asp?symbol=KKDKrispy Kreme History. Retrieved April 3, 2008, from Krispy KremeWeb site http//www.krispykre me.com/history.htmlKrispy Kreme Quarterly Financial Report. (2007). Retrieved March 3, 2008, from Krispy KremeWeb site http//www.krispykreme.com/investorrelations.html