Reference no: EM1312509
Draw Conclusions you draw on face of financial Statements.
The financial health of a company can be analyzed using a variety of accounting concepts and methods. For the analysis of Krispy Kreme, the concepts and methods we will use are depreciation analysis, company stock analysis, cash flow statement analysis, income statement trend analysis, and management analysis. Each of these analyses is important for different reasons and, when used in conjunction with each other, can help us to gain a better understanding of a company's overall financial health.
Depreciation analysis is used in evaluating a company's financial health because it helps us to evaluate whether a company is purchasing the right number of assets and using those assets effectively. We see that in 2002, 72% of the original cost of Krispy Kreme's property, plant, and equipment remains to be depreciated. In 2003 that number has increased to 80%. This increase is most likely due to additional asset purchase for expansion. A total asset turnover percentage can be computed to assist in asset management. This percentage is used calculated by dividing net sales by average total sales. The higher the percentage, the better the company is at using its assets. Higher turnover percentages are generally desired, but also may indicate that the company is more labor intensive than capital intensive. This means that people generate more sales than the assets do. Because of this alternate reason for a high turnover, it is important to compare this number to other periods for the same company, or to competitors in the same type of business; that way you have more relevant analysis. Krispy Kreme's total asset turnover for 2002 was 1.85 while in 2003 it was only 1.48. The reason that the total asset turnover decreased is most likely because of Krispy Kreme's expansion during that year. This would cause them to purchase more assets while not necessarily increasing sales enough to balance out the extra expenditures.
Company stock analysis
Cash flow statement analysis is a very important part of analyzing a company's overall financial health.
Income statement trend analysis
Management analysis
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