Krispy Kreme’s Dilemma
Case Study 1:- Krispy Kreme Doughnuts inc
Maytham Hussein Saeed
Question 1
Is Krispy Kreme financially “healthy”? What do the statement show, what do the ratio show?
Answer
Based on the Common Sized Financial Statement of Limited Service Restaurant Averages and Krispy Kreme (KKD) the value of KKD’s cash and equivalents is 3.1 and its lower that the 3 years industry average’s value of 12.8 in 2001, 12.4 in 2002 and 13.7 in which is not a good sign because it show company has low cash in their hand compared to industry benchmark. This is due to the low in sale especially cash sale that will lead to low cash collected from their sale. Although their cash turnover (CTO) that increase back to 32.79 times (FY Feb 2004) after the 3 years downward movement that start from 69.19 in FY Jan 2000 to 15.26 in FY Feb 2003, but it still cannot be consider as high because there are other competitor that have higher CTO such as Jack in the Box and Yum Brands. Thus, this shows that their ability to generate cash from their sale is not as good as other big companies in the industry but in term of KKD’s cash management, its start to show improve to be better compared to last 4 years.
Trade receivables of KKD based on common sized financial statement (10.4) is very high compared to the industry average (2001:1.6, 2002:0.9, 2003:1.4) which is not a good sign because it show that company give too much credit facilities to their customer. This also leads to the decreasing in ability of KKD to collect their credit sale from their customer and it can be see when their receivables turnover drop from 10.61 times (FY Feb 2003) to 9.70 times (FY Feb 2004) and the lowest among five Fiscal Year starting from FY2000 till FY2004. In comparison to their major competitors in the industry it clearly show that KKD receivables turnover is the lowest among all them. Thus this is not a good sign because it shows that KKD only able to collect their
Maytham Hussein Saeed
Question 1
Is Krispy Kreme financially “healthy”? What do the statement show, what do the ratio show?
Answer
Based on the Common Sized Financial Statement of Limited Service Restaurant Averages and Krispy Kreme (KKD) the value of KKD’s cash and equivalents is 3.1 and its lower that the 3 years industry average’s value of 12.8 in 2001, 12.4 in 2002 and 13.7 in which is not a good sign because it show company has low cash in their hand compared to industry benchmark. This is due to the low in sale especially cash sale that will lead to low cash collected from their sale. Although their cash turnover (CTO) that increase back to 32.79 times (FY Feb 2004) after the 3 years downward movement that start from 69.19 in FY Jan 2000 to 15.26 in FY Feb 2003, but it still cannot be consider as high because there are other competitor that have higher CTO such as Jack in the Box and Yum Brands. Thus, this shows that their ability to generate cash from their sale is not as good as other big companies in the industry but in term of KKD’s cash management, its start to show improve to be better compared to last 4 years.
Trade receivables of KKD based on common sized financial statement (10.4) is very high compared to the industry average (2001:1.6, 2002:0.9, 2003:1.4) which is not a good sign because it show that company give too much credit facilities to their customer. This also leads to the decreasing in ability of KKD to collect their credit sale from their customer and it can be see when their receivables turnover drop from 10.61 times (FY Feb 2003) to 9.70 times (FY Feb 2004) and the lowest among five Fiscal Year starting from FY2000 till FY2004. In comparison to their major competitors in the industry it clearly show that KKD receivables turnover is the lowest among all them. Thus this is not a good sign because it shows that KKD only able to collect their