Krispy Krème Doughnuts. A harvard business school finance case study

Essay by meenalbhatUniversity, Master's April 2004

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Krispy Krème Doughnuts


To develop an investment recommendation for Krispy Krème Doughnuts and conclude whether they should go ahead with their on going expansion strategy or not.

To achieve this objective, historical financial statements will have to be analyzed and an assessment of the future financial health of the firm be made.

Based on the case, it is evident that Krispy Krème Doughnuts opened to the public with a boom, with its share prices rising form $5.5 to $9.25 in just one day. The increments in the value of their shares are commendable. However, now the issue faced by the company is whether Krispy Crème Doughnuts will be able to sustain this growth. The revenues form all sources, company stores, franchises and KKM&D need to be maximized.

Krispy Crème Doughnuts is a comparatively young company and a good potential to grow further. With just 222 stores by April 2002, it is already a market leader by the number of doughnut it sells annually; 2 billion as compared with 1.6

billion of Dunkin Donuts form 4736 stores.

Working Capital Required:

As shown in Exhibit 1, Fig 1 the working capital required for the past years has been $29443 in 2001 and $49236 in 2002.

The average rate of Working Capital/Sales Ratio = 11.12%. Hence, the projected values for 2003 and 2004 are $33430.95 and $43958.36

It can be seen that the amount of working capital required can easily be generated from their operations.

Further Analysis:

Looking at the Ratio Analysis, (Exhibit2, fig 3)

Looking at the Investment Activity Ratios:

The ROA, ROE is almost constant therefore the managements utilize its assets well.

P/E Ratio is very high thus indicating the health of the company is very good.

The Investment Utilization Ratios have also been almost constant throughout. The Investments...