Krispy Kreme Doughnuts

The undermentioned are the major worrys chaff were facing It mistakenly tied up the attain, the number of stores, and the gross gross revenue of machines and ingredients together. Moreover, it was as well as aggressive. It was hungry to show its perfect performances to investors by beautifying their news honor. From non-fiscal perspective, there are serious drawbacks behind the expanding, and the increase numbers of stores made the K Doughnuts everywhere, which made customers lose their feelings of freshness of It.As the case mentioned, kid raised Its obtain cost on the Michigan licence In order to get the Interest of loans back and KID put overmaster the hobby under as an contiguous income, profit. In the meanwhile, it word of honored the woo of buyback the enfranchisement and the ease upment to the executive as an nonphysical asset, which the confederacy did not amortize. In my opinion, the interest should be recorded under equity and the cost and payment cou ld be booked as properties, cost, or at least(prenominal) they need to be amortized.KID got the interest from the franchise and successfully raised Its revenue enhancement to attract Investors entirely it in fact sacrificed Its hardliners benefits by offering an over value purchasing prize. Moreover, keeping the previous executive work the trade resolved and giving a coarse come in of compensation makes me wonder if there was an in spite of appearance trade. attest 1, 2& 3 shows the un healthful harvest-time of KID. Compared to the growth of total revenues in the whole partnership, revenue that each stores contributed (total revenue/ total factory stores) was not increasing accordingly.On the contrary, the expanding upon of stores brought the locoweed mellow get set downs and venture. The cost of opening a new store, aqualung It and close It was paid in vain. The number of stores grew too quickly. The designate also shows the abnormal high value of behave- expendit ure patterns compared to the S 500 Composite Index but it was in the long run down to the earth in the end of 2004 influenced by the divesting of meitnerium Mills and closing down of 3 underperformed stores.Viewing the company structure, revenues were generated from on-premises retail sales at company-owned stores (accounting for 27% of revenues) off-premises sales to grocery and convenience stores (40%) manufacturing and dispersal of product integrate and machinery (29%1 and franchi operate loyalties and fees (4%). Actually, the ideal revenue resources of this kind of corpo dimensionn should mainly come from the franchisee royalties and fees but not from distribution of mix and machine. The company supposed to boost the sales of its main product doughnuts but not to expansion blindly.Once its doughnuts become popular and profitable, people will be willing to get In to the business and pay KID franchisee royalties and fees. However, the realistic was many units were losing money off-premises, and franchisees were not motivated to grow their sales, which fleets a governance problem in this corporate that the company itself did not has unwashed benefits with its franchisees. The stock price of KID was fluctuated severely in recent years and the suggestions of buy, sell or dare from analysts were closely related to the stock price and s taildal. ND January 2005, when the stock price was at its peak, at 22. 51 dollars per get by (first under estimate), at 15. 71 dollars per helping (divested Montana Mills) and at less than 10 dollars per share (credit-facility defaulted). Crispy Seekers share price was $40. 63 right hand after its PIP, giving the firm a securities industry capitalization of nearly $500 lions. The stock price might be over valued at first beca workout KID was so popular at the time and therefore the public drove up the price. After a series of problem, the company restated its financial statements for the PAYOFF, which reduced pre revenue enhancement income by between $6. Million and $8. 1 million. This movement sharply decreased the evaluate expenses of the company, which is turn out by items of income in the lead income assesses, provision for income taxes and income taxes refundable in Exhibit 2. It is strange that given a large amount of amortized intangible asset, the company hushed ad a high level of tax shield as shows in the depreciation and amortization expenses from Exhibit 1 . Thus, the company might be showing a higher profit for investors but lower income for tax purposes, changing the treatment of amortization between the two.This example violated the requests and rules in GAP. Knowing the accounting tricks that KID was playing, people can approximately calculate its book value by amortizing its asset, increasing its cost and tax, which leads to a deduction of profit. Influenced by the divesting of Montana Mills, the interest expenses, income tax refundable, semipermanent notes receivable, Joint venture ND intangible in 2004 increased dramatically and the share price dipped compared to them in 2003 as we can see from the Exhibit 1&2.However, it is odd that the interest expense raised so much when then the long-run debt decreased. Further more, from the Debit-to- equity ratio in Exhibit 7, we can see that the level of debt and financial distress went down in 2004. Therefore, guess is that the company might use the total long-term liabilities in calculating the interest expenses in order to have more tax benefits. As its known to all that the higher the ratio of liquidity, average, activity and profitability are the better the companys piazza is in.Compared to other quick-service restaurants in Exhibits, only the receivables turnover and fund turnover of KID was slightly lower than the average, which heart the corporation was not performing absolutely badly. And in Exhibit 9, when comparing to average restaurant, Kids cash & equivalents, notes payable, long-term debt, inc ome taxes payable, all other current were much more lower and the trade receivables, intangibles, deferred taxes and shareholders equity were higher than the popular stores.Unexpectedly, the net income of KID on May 9, 2004 was interdict 24,458, but it went up to positive 5,763 three months afterward on August 1, 2004. How could the situation be off-key close to in such a hornswoggle time? As a matter of fact, an over-valued stock price will eventually go down to what it supposed to be in a high efficient market. This is one of the reasons that the bubble of the stock broke and the price slumped. Along with the revelation about the companys franchise accounting practices and the wrong operating methods, they explained the devalued of its stock.I count the doughnuts company should not rely heir profit on the sales of high margin machines but to make its actual product (signature doughnuts) better since it contributed around 60% to the total sales. In the meanwhile, KID should acquire its factory style, which provides newly baked fresh healthy trend among people influenced the sales of its products, improve their ingredients or explore new recipes are necessary. Furthermore, through explore and sufficient preparation are important before exploring overseas market or expansion. KID already had its brand, goodwill and own steady customer group, it still has a chance to fight back.