(Learning Objective 3: Using gross profit percentage and inventory turnover to evaluate two…

(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:

Krispy Kreme Doughnuts, Inc. Statement of Operations (Adapted)

Fiscal Year

2006

2005

Revenues:

Net sales

$543

$708

Costs and Expenses:

Cost of goods sold

475

598

General and administrative expenses

68

55

Krispy Kreme Doughnuts, Inc.Balance Sheet (Adapted)

January 31,

2006

2005

Assets

Current assets:

Inventories

$17

$28

Cash and cash equivalents

24

29

Receivables

27

30

Starbucks Corporation Statement of Earnings (Adapted)

Fiscal Year

206

2005

Sellings, general and administrative expenses

$7,787

$6,369

Net sales

2,948

2,363

Cost of goods sold

3,179

2,605

Starbucks Corporation Balance Sheet (Adapted)

Year End

2006

205

Assets

Current assets:

Inventories

$313

$174

Cash and temporary investments

636

546

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)

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