Krispy Kreme Essay

4059 Words Aug 10th, 2013 17 Pages
KRISPY KREME DOUGHNUTS, INC.

Teaching Note

Synopsis and Objectives

This case considers the sudden and very large drop in the market value of equity for Krispy Kreme Doughnuts, Inc., associated with a series of announcements made in 2004. Those announcements caused investors to revise their expectations about the future growth of Krispy Kreme, which had been one of the most rapidly growing American corporations in the new millennium. The task for the student is to evaluate the implications of those announcements and to assess the financial health of the company. This case is intended to be introductory as it can provide a first exercise in financial statement analysis and lay the foundation for two important financial
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The surprising revelations about the U.S. Securities and Exchange Commission’s (SEC) investigation into Krispy Kreme and the reports of aggressive accounting for franchises probably caused investors to revise downward their expectations about future cash flows. Thus, financial statements and the choice of accounting policies may be seen as containing signals about future performance.

The instructor could close the discussion with a review of events since the date of the case. The epilogue presented here summarizes the company’s financial performance up to late 2005. Exhibits TN2 and TN3 (on financial statement analysis and financial health) may be distributed to students after the discussion or could be used by the instructor as a foundation for summary comments. See the company’s Web site for updates on its financial information (http://www.krispykreme.com).

Case Analysis

Preparation and exactness of financial statements

The purpose and structure of a firm’s financial statements are well documented in standard texts and will not be repeated here. Novices studying this case, however, may benefit from a slow review of the specific accounts, the choices that managers can make in estimating them, and the possible degree of exactitude. The case presents none of the footnotes to the accounts, which prevents a detailed discussion of accounting policy. Nevertheless,

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