Term Paper on "Krispy Kreme Management and Analysis"

Term Paper 4 pages (1164 words) Sources: 3 Style: APA

[EXCERPT] . . . .

Krispy Kreme

Final Project: Analyzing a Company's Financial Health

Depreciation analysis

Krispy Kreme's state of corporate health looks bleak. True, the costs incurred from the depreciation of company assets has remained relatively steady at Krispy Kreme, for the past three years. Depreciation of assets means the amount of wear and tear upon company equipment, and what the company will need to spend to replace those assets has remained virtually the same since it went public in 2001. Depreciated asset expenditures are usually deductible on a company's tax returns, but overall, rehabilitating the depreciated assets does not lend extra value to the company, unlike expanding or improving its operations and creating a measurable change in its standard operations.

Company stock analysis

However, the news about depreciation is virtually the only good news to come from the doughnut company's most recent annual report. The company began to issue stock and became a publicly traded firm in 2001, however, because of its poor financial showing it intends to retain its total earnings in 2007 to finance the expansion of its business and does not anticipate paying cash dividends in the foreseeable future (Management Discussion and Analysis (MD&a) of 10-K for 2007: 22). According to its report, to remain competitive, the company believes that it needs to substantially reform its current corporate configuration and generate more revenue. Going public did raise crucial revenue in 2002 for the company (Management Discussion and Analysis (MD&a) of 10-K for 2007: 35).

But Krispy Kreme's current stock value has substantially declined in since the initial public offering in less competitive and carbohydrate-conscious times, and the flush of enthusiasm over its then-novel, sticky sweet product has since dimmed. Sales and stock value have not kept pace with initial shareholder and analyst expectations

Cash flow statement analysis

In terms of its cash flow statement, which records the amounts of cash and cash equivalents entering and leaving the company, the company has no derivative financial interests or derivative commodity instruments in its cash or cash equivalents on any business day. When it has excess cash available, it uses the cash to pay down its revolving line of credit. Given the prohibitively high rate of interest for borrowers, this leaves the financial health of the core operations, investing and financing of the company in doubt. It notes that investing activities in fiscal 2002 primarily consisted of capital expenditures for property, plants and equipment. (Management Discussion and Analysis (MD&a) of 10-K for 2007: 35). Upon going public, the company substantially expanded its investments in new resources hence net cash used for investing activities was $10.0 million in fiscal 2000, $67.3 million in fiscal 2001 and $52.3 million in fiscal 2002. (Management Discussion and Analysis (MD&a) of 10-K for 2007: 34)

Income statement trend analysis

Prior to fiscal 2001, Krispy Kreme's income primarily relied on cash flow generated from operations and its line of credit to fund its capital needs. It does project that cash flow generated from operations and borrowing capacity under its lines of credit will be sufficient to meet its capital needs for at least the next 24 months, and if additional capital is needed, it will try to raise capital through public or private equity or debt financing or other financing arrangements. However, given that it has been unable to pay cash dividends to investors, raising money through private equity may prove difficult. If financing the company is in jeopardy, this would mean slowing its plans to remodel and relocate older company-owned… READ MORE

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