Krispy Kreme
KRISPY KREME DOUGHNUTS, INC.
Teaching Note
Synopsis and Objectives
This case considers the sudden and very large drop in the market value of equity for Krispy Kreme Doughnuts, Inc., associated with a series of announcements made in 2004. Those announcements caused investors to revise their expectations about the future growth of Krispy Kreme, which had been one of the most rapidly growing American corporations in the new millennium. The task for the student is to evaluate the implications of those announcements and to assess the financial health of the company. This case is intended to be introductory as it can provide a first exercise in financial statement analysis and lay the foundation for two important financial themes: the concept of financial health, and the financial-economic definition of value and its determinants.
Suggested Questions for Advance Assignment to Students
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.?
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?
3. Is Krispy Kreme financially healthy at year-end 2004?
4. In light of your answer to question 3, what accounts for the firm’s recent share price decline?
5. What is the source of intrinsic investment value in this company? Does this source appear on the financial statements?
Hypothetical Teaching Plan
This case could be used for the opening class in a sequence of finance and accounting cases in a short executive-education program. Students are expected to have studied an introductory reading on financial statements. Accordingly, this case seeks to exercise and build upon that rudimentary understanding so that students begin
Teaching Note
Synopsis and Objectives
This case considers the sudden and very large drop in the market value of equity for Krispy Kreme Doughnuts, Inc., associated with a series of announcements made in 2004. Those announcements caused investors to revise their expectations about the future growth of Krispy Kreme, which had been one of the most rapidly growing American corporations in the new millennium. The task for the student is to evaluate the implications of those announcements and to assess the financial health of the company. This case is intended to be introductory as it can provide a first exercise in financial statement analysis and lay the foundation for two important financial themes: the concept of financial health, and the financial-economic definition of value and its determinants.
Suggested Questions for Advance Assignment to Students
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.?
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?
3. Is Krispy Kreme financially healthy at year-end 2004?
4. In light of your answer to question 3, what accounts for the firm’s recent share price decline?
5. What is the source of intrinsic investment value in this company? Does this source appear on the financial statements?
Hypothetical Teaching Plan
This case could be used for the opening class in a sequence of finance and accounting cases in a short executive-education program. Students are expected to have studied an introductory reading on financial statements. Accordingly, this case seeks to exercise and build upon that rudimentary understanding so that students begin