Krispy Kreme’s Health: “Fattened” Statements

589 Words3 Pages
Krispy Kreme has tampered with its financial statements ranging from 2000 to 2004 when they could not make its revenue targets to satisfy Wall Street. We found many discrepancies from the years after analyzing the income and the balance sheet statements in Exhibit 1. The balance sheet and the income statement had undergone major changes, particularly in years 2003 and 2004. While examining the balance sheet, we noticed the cash account nearly tripled from 2001 to 2004, total equity exceeded debt hence the reason for the low debt to equity ratio. The income statement’s total revenues doubled in two years due to their unusual growth. The problem to behind income statement and balance sheets stems from their company owned and franchised factories; instead of selling the donuts, the company sold machinery to make their products. The goodwill and required franchise rights doubled each year until 2004 which raised questions and concerns as to whether Krispy Kreme improperly implemented accounting treatments. Compared to the industry, Krispy Kreme was apparently a very high performing company, but we questioned the performance data. First problem we encountered were the current and quick ratios were unusually high due to the amount of cash, receivables and short term investments that Krispy Kreme held. This is an indication that the company was not investing in other projects and remained conservative with regards to the treatment of current assets from 2001 to 2004. The net sales, receivables and inventory turnover were much lower compared to the industry, but ultimately the profit margin and return on equity remained consistent which we considered questionable. The leverage ratios were lower than the industry; the company used debt to make payments and took a line of credit. Although cash reserves were high and debt was very low, the cash ratio was lower

More about Krispy Kreme’s Health: “Fattened” Statements

Open Document