Krispy Kreme

Introduction

I chose to do my financial analysis paper on Krispy Kreme Doughnuts. Krispy Kreme

Doughnuts was formed in 1933 by Vernon Carver Rudolph. Mr. Rudolph purchased a small doughnut shop in Kentucky from a French chef; with this purchase he obtained the company's assets, goodwill and the rights to a secret yeast-raised doughnut recipe.

In 1937 Mr. Rudolph opened up a wholesale business where he started selling to local grocery establishments. The local townspeople would love walking by the bakery and would often request to purchase the doughnuts, so he decided to cut a hole in the factory wall and started selling them to the community. Over the next 20 years, Mr. Rudolph and his partner opened several other stores in North and South Carolina. This started a regional store chain. Mr. Rudolph died in 1973, and three years later Beatrice Foods Company of Chicago, Illinois purchased the store chain. In 1982, Joseph A. McAleer Sr. owner of a group of the Krispy Kreme franchises, purchased the corporation from Beatrice Foods and Krispy Kreme became an independent company again. Krispy Kreme Doughnuts now has stores all over the country, and internationally including Mexico, Australia, Canada and England. Today Krispy Kreme Doughnuts stores makes and sells over 20 varieties of doughnuts. Each franchise has the capability of making 4,000 to 10,000 dozen doughnuts every day. As of February 1, 2004, there are 357 Krispy Kreme factory stores in operation, 338 of these are located in the United States. Krispy Kreme has now expanded its ventures to a best-in-class beverage program to compliment its tasty doughnuts.

Analysis

The liquidity of Krispy Kreme Doughnuts is excellent. The ease of selling the asset and converting it to cash at a "fair market value" would be very easy to do. According to Reuters the Current Ratio of the company is listed at 1.86. Their Net Income is 31.50 million with the Industry being at 2.02 million. Krispy Kreme's total debt is 133.63, their Debt/Equity Ratio is at .305, this is a good ratio to show company solvency.

Krispy Kreme's Price/Earnings Ratio is at 27.26, which is the amount that the investors are willing to pay per dollar of reported profits. This shows an excellent profitability margin. This also shows a strong potential for growth of the company. Krispy Kreme primarily funded their capital requirements for the first quarter of 2005 through the cash flow generated from operations and the use of existing cash. Krispy Kreme's net cash flow from operations was $25.4 million in the first quarter of fiscal year 2005 as apposed to $11.9 million in the first quarter of 2004. The increase in capital is mainly from the expansion of their off-premises sales (daily sales of fresh doughnuts on branded, unbranded and private labels) programs and