Krispy Kreme Financial analysis

CASE STUDY: KRISPY KREME FINANCIAL ANALYSIS
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(09, November, 2010)
Case Study: Krispy Kreme Financial analysis
Introduction
Krispy Kreme Doughnuts deals with retail and wholesale of packaged sweets and doughnuts, coffee and other types of beverages. It operates about 530 stores both locally and in foreign countries like Australia, Canada, Indonesia, and Mexico among other countries. The company is head quartered Winston –Salem, North Carolina. This paper financial analysis is done between Krispy Kreme and average industry which is comprised of other companies in the restaurant industry for example the Starbucks and McDonalds.
Financial Ratio Analysis
Some of the key ratios analyzed in this case study includes Return on assets, Return on investment, Return on equity Investments, liquidity, efficiency, financial position, profitability, returns and margins ratios.
Quick ratio: This is the measuring of liquidity ratio which is done by comparing current assets minus inventories divided by current liabilities. Krispy Kreme's quick ratio is 1.73, while the industry's is 0.69. This is a very positive ratio for the firm because it indicates that the firm has a competitive advantage over the industry when it comes to its ability to pay off its debt. i.e. its ability is superior as compared to that of the industry.
Inventory turnover ratio: this is cost of the goods sold divided by inventory. The firms turn over ratio is 20.03. This means that the company is able to sell their inventory in 18 days on average as compared to the industry's turn over which is 31.78 hence can sell their inventory in 11 days (Associated Press, 2002). From the fact that Krispy Kreme is a very liquid company, as far as speed of inventory is concerned, there are a little behind them.
Return on Assets (ROA): this is the key indicator in evaluating how the management is generating profits from operations. ROA is net income divided by total assets. The Krispy Kreme ROA is 12.28, while that of the industry is 9.15 and this considerable difference in the ratios means that the firm has a huge advantage in that for every dollar in total assets, Krispy produces $12.12 in net income as the industry produces $9.15; therefore it means that Krispy Kreme is good in using its assets to produce more income and thus high profit margin.
Price-to -sales multiple of the Krispy Kreme's is significantly higher (4.64) as compared to that of the industry (1.63) which means that it's very positive for medium to large sized firm.The price-earnings multiple of the Krispy Kreme's is 16.18 while that of the industry is 21.73. this from investors perspective indicate that Krispy Kreme is extremely overpriced as compared to its competitors and earnings will continue to increase hence the company is more likely to increase their stock which is a generally a good sign for the company.
SWOT analysis of Krispy Kreme
Strengths
Krispy Kreme's has the capability to align its strategy and execution of its brand potential. They have their priorities set on having both brand value and internal cultural values. Using their brand as a platform, it has developed strategies such as promoting, understanding and protecting their brand, p...