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.?
The company’s financial performance looks quite good at the end of Feb 1, 2004. From the exhibit 1, income statement, we can see that Krispy Kreme was growing from the year ended Jan 30, 2000 to the year ended Feb 1, 2004. Total revenue increased significantly 202% from US$ 220,243 thousands in Jan 30, 2000 to US$ 665,592 thousands in Feb 1, 2004. Net income increased 858% from US$ 5,956 in Jan 30, 2000 to US$ 57,087 thousands in Feb 1, 2004. The balance sheet in exhibit 2, looks as good as the income statement in …show more content…
These showed that the company focused on rapid growth (they opened more stores, see exhibit 3) therefore the long-term debt and equity were likely to support it.
2. How can financial ratios extend your understanding of financial statements? What questions do the time series of ratios in case Exhibit 7 raise? What questions do the ratios on peer firms in case Exhibits 8 and 9 raise?
Financial ratios are designed to extract important information that might not be obvious simply from examining a firm’s financial statement. It is very important to analyze firm’s financial performance. Comparing financial ratio with the previous year or with industry average can give as information where a company might be headed.
From the exhibit 7
We see that the liquidity ratios increased from 2000 to 2004. It showed that company were more able to pay off its current liabilities with its current assets available.
In 2001 and 2002, we see that leverage ratios was the best during the 5 years period, with low debt to equity ratio and debt to capital ratio and an impressive times interest earned. However, if we compare 2000 and 2004, we see that debt to equity ratio and debt to capital ratio decreased from 2000 to 2004, it means that company used less leverage and had a stronger equity position. We also see that the times interest earned increased from 7.11 in 2000 to 124.29 in