A (Learning Objective 3: Using gross profit percentage and inventory turnover to evaluate two companies) Krispy Kreme Doughnuts and Starbucks are both specialty food chains. The 2 companies reported these figures, in millions:
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Krispy Kreme Doughnuts, Inc. Statement of Operations (Adapted) |
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Fiscal Year |
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2006 |
2005 |
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Revenues: |
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Net sales |
$543 |
$708 |
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Costs and Expenses: |
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Cost of goods sold |
475 |
598 |
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General and administrative expenses |
68 |
55 |
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Krispy Kreme Doughnuts, Inc.Balance Sheet (Adapted) |
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January 31, |
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2006 |
2005 |
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Assets |
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Current assets: |
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Inventories |
$17 |
$28 |
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Cash and cash equivalents |
24 |
29 |
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Receivables |
27 |
30 |
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Starbucks Corporation Statement of Earnings (Adapted) |
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Fiscal Year |
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206 |
2005 |
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Sellings, general and administrative expenses |
$7,787 |
$6,369 |
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Net sales |
2,948 |
2,363 |
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Cost of goods sold |
3,179 |
2,605 |
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Starbucks Corporation Balance Sheet (Adapted) |
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Year End |
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2006 |
205 |
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Assets |
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Current assets: |
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Inventories |
$313 |
$174 |
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Cash and temporary investments |
636 |
546 |
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Receivables, net |
224 |
191 |
Required
1. Compute the gross profit percentage and the rate of inventory turnover for Krispy Kreme and for Starbucks for 2006.
2. Based on these statistics, which company looks more profitable? Why? What other expense category should we consider in evaluating these 2 companies? (Challenge)