Case 1 : Krispy Kreme Doughnouts, Inc

Questions
1. What are the definition and purpose of an income statement, as shown in exhibit
1?
In exhibit 1 shows a summary of a management's performance of Krispy Kreme
Doughnuts that is documents income that itemizes revenues and expenses over
particular period which can be done quarterly or at the end of the financial year.
The purpose of the Income Statement, or profit and loss account, is to measure
how much profit the business has generated over a period. This is done by
identifying both the revenue generating business in every day operations and the
expenses incurred during these day-to-day operations. Any profit in economic
revenue will result in whether an increase in assets or a decrease in liabilities,
while a loss in benefits will result in either a decrease in assets or an increase in
liabilities. The difference between the revenue and expenditure will provide either
a profit or loss.
2. What are the definition and purpose of a balance sheet as shown in case Exhibit
2? How are the two statements related?
Exhibit 2 shows a summary of the financial balances within a company: it
documents all of the companys liabilities, ownership equity and assets at a
certain moment in time within the business calendar year.
The Balance Sheet, or Statement of financial position, consists of three key
elements: Assets (what it owns), Liabilities (what it owes) and Equity (owners
equity or net worth). The Balance Sheet details the assets on one side and the
liabilities and equity on the other and the two sides always balance. The Balance
Sheet describes not just how company has invested in assets but also what kind of
assets it owns, what portion comes from creditors (liabilities), and what portion
comes from owners (equity). This document gives you a good idea about the
health of a company as well as how sufficient a company is use its assets and
managing its liabilities.
The Income Statement and the Balance Sheet are closely related and therefore
complement each other. An example
3. Is Krispy Kreme financially healthy? What do the statements show? What do
the ratios show?
4. Given your assessment of Krispy Kremes health, why did its stock price drop by
80% between 2003 and 2004?