Krispy Kreme Case Number 1

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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.?

In Exhibit 1, the income statement it is easiest to examine the financial health of Krispy Kreme Doughnuts, Inc. by using their net income. Net income is the most commonly used indicator to show a company's profitability. In January of 2000, their net income was 5,956 (thousands) and in August of 2004 it was 57,087 (thousands). It steadily rose over the four years. Although, later in May of 2004 Krispy Kreme discontinued its Montana Mills concept due to a high consumer interest in low-carbohydrate diets, which resulted in a net income loss of 24,438 (thousands) at the end of May 2004. 3 months later, at the end of August 2004, they had restored their net income close to the January 2000 level. This steady growth and quick rebound shows that Krispy Kreme is financially healthy.

In Exhibit 2, the balance sheet gives a more detailed look into a company’s overall financial well-being. A current ratio measurement is used to compare the number of current asset dollars to each dollar in liabilities. In order to measure this, current assets are divided by the current liabilities. The current ratio shows that in 2000 there was $1.387 in assets to every dollar in liabilities (41,038/29,586). In August 2004, the current ratio was $2.368 (165,173/69,739). In other words the company had more cash assets available in 2004 compared to 2000 and if it were to suffer a loss like it did in May 2004, the company would be able to recover and not go bankrupt. Not only did Krispy Kreme recover but their company was in a better position in August 2004 compared to January 2000, which shows that they are not only healthy but a growing company despite losses.
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