Krispy Kreme Doughnuts, Inc.

Case #3‐ Krispy Kreme Doughnuts, Inc.

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1. Some thoughts concerning the major issues presented within the current case:

1. What do the historical income statements and balance sheets tell you about the financial health and current condition of Krispy Kreme Doughnuts?
2. How can financial ratios extend your understanding of financial statements? What does a time series analysis of Krispy Kreme reveal? What additional questions (information) do the ratios on the peer firms raise (provide)?

1. Given a financial analysis of Krispy Kreme (based solely on the information provided in the case), is Krispy Kreme "healthy" at the end of 2004?
2. What accounts for the recent share price decline? Hint: Make sure to discuss the differences between an accounting and financial perspective of the firm. The value dropped by 80%... why?

1. What is the source of firm value? Does this source appear on the financial statements? Hint: Make sure to discuss the determinants of value and the linkage between these determinants and the financial statements of a firm or other factors beyond the financial statements as the case may be.

1. A few other comments about case evaluation/critique content and hints:

1. The case provides an opportunity to explore the relationships between the firm's income statements and balance sheets.
2. Are the financial statements of a firm exact or subject to managerial discretion? You should be able to discuss some examples to support your contention and the impact this observation has on (a) the financial statements and analysis provided and (b) the health and value of Krispy Kreme.
3. The case lends itself well to discussing growth (historical and projected, revenue and earnings).
4. Hint: Sufficient information is provided to look deeper into the drivers of the firm's returns. Further, the data is sufficient for a fairly detailed time-series and cross-sectional analysis of the firm's ratios and analysis of the firm's common size financials. You do not need to comment on every ratio- rather identify the ones that are providing insights into the financial health and value.
5. Think about what would be signs of a company approaching financial distress. What would be signs of a financially "fit" firm? What would be signs of an "exceptional" firm? Where would you place Krispy Kreme (make sure to explain why)?

1. General Warning:

As always, the case write-up and presentation should have a flow and not simply attempt to provide discrete answers to the listing of issues presented earlier. Although you are expected to address all of the issues within the case write-up, they should be answered or replied to in the context of evaluating the major issues of the case- that is "What is the financial health of Krispy Kreme and why did the stock price fall 80%?"

FINC 4450‐ Dr. Basciano        Page 1

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