Krispy Kreme Essay

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[pic] Group 2 Rachelle Kaker Joe Terry Darrin Peters Robert Timmons John-Lloyd Gardner Table of Contents Executive Summary 3 Analysis and Recommendations 4 Works Cited 12 Appendix A: Company Overview 14 Appendix B: Uncorrected Ratios 17 Appendix C: Corrected Ratios 18 Appendix D: ICR Graph 19 Appendix E: Implied Volatility 20 Executive Summary The plummet of Krispy Kreme’s stock price is a function of the skepticism investors have in the company. The following plan is intended to reduce the uncertainty surrounding the companies stock and increase the net present value of future cash flows. Recommendation 1 states that Krispy Kreme should continue closing stores with negative net present values. In addition smaller outlets will be franchised. This is a move less risky than corporate owned expansion and will likely produce positive cash flow. Franchised stores will eventually replace whole selling to grocery and convenience stores, a strategy with a negative net present value due to erosion in sales at franchised or company owned stores. Recommendation 1 resolves the problem surrounding high operating leverage in areas with low sales potential. While these markets are profitable, high investments in buildings and equipment provide excess capacity at a high cost. In an attempt to reduce the uncertainty of Krispy Kreme’s stock recommendation 2 suggests that Krispy Kreme make a firm commitment to issue financial statements on a feasible date. Many of the firm’s problems stem from inaccurate accounting data. A confident and prompt restatement of earning would go a long way in resolving the agency problem that plagued the firm under former CEO Livengood. The sooner accurate statements can be made available, the better. Long run success is dependent on honest financial reporting and resolving other components of the agency

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