Krispy Kreme Doughnuts (KKD) Financial Assessments and Analysis

Krispy Kreme Doughnuts
The Internal Assessment
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The company’s long-term debt as of the third quarter of the year 2015 was $11.3 million. The long-term debt to total assets is a ratio that illustrates the potion of a firm’s assets that are fund through loans and other forms of lending, for a period of twelve months. It paints out a clear picture of the company’s financial position. It is also an indicator of the firm’s ability to meet its debt obligations .Krispy Crème’s aggregate assets at that same time stood at $337.5m.Its long-term debt to total assets ration therefore, was 0.03.In 2014,this ration stood at 0.02(Gurufocus,n.d.).This means that the ratio increased in 2015 as compared to 2014.This is evidence that the company is increasingly growing reliant on debt as the main criteria of growing its business operations (Fridson et.al. 2011).
As per the same period, the company’s gross profit was $25.6m while its revenue stood at $128.5m.Gross margin is usually the quotient of the gross profit and the revenue. In this case, the company’s gross margin was 19.93%.Actually; its gross margin has been lower than virtually all the leading companies in the hospitality industry. Its 2015 gross margin of 19.93% is an indication that its model has no sustainable competitive advantage (Gurufocus, n.d.).When there is a durable competitive advantage, there is the creation of a steep Gross margin as a result of the liberty of price. Gross margin can therefore be used to classify companies. Those with a percentage greater than 40 have a durable competitive advantage, while those with lower than 20, have little to no sustainable advantage (Fridson et.al. 2011).
The average annual asset growth rate of the company ranges between 1.1% and 1.3%. Over the past half a decade however, the total assets growth rate averaged 17.2% annually. This is a very alarming statistic, since, in normal circumstances, if a firm has an asset growth of 17.2% a year while the growth of its revenue falls way behind at 7%, there might be evidence of decreased efficiency by the firm. The net assets are interconnected with Return on Assets and asset turnover. For this company, its turnover for that same period was 0.38(Gurufocus, n.d.).The company’s capital budgeting procedures aren’t effective to some extent, since they leave a loophole for fraud and hence mismanagement. For example, the company should look keenly into the transactions it does with its suppliers (Mullford & Comiskey, 2005).
When it comes to capital availability, the cash to debt ratio comes into play. This ratio measures the financial turgidity of an organization. By analyzing Krispy Kreme’s cash and cash equivalents, and dividing these by its debts, the result is 3.21 for the quarter ending October 2015.This means that the company can comfortably deal away with its debts with the cash reserves that it possesses. This is because its ratio is greater than 1; however, if it could have been less than 1, then the converse would be true. The analysis of these financial ratios is important in the determination of the present and future position of the company....