Business Recently, Krispy Kreme Donuts Term Paper

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In turn, the Return on Equity, which is calculated my multiplying the Du Pont variables listed above, will most definitely be altered. The potential for return is, naturally, one of the most relevant factors for investors in determining if a stock is a worthy investment, and if so, how much of it to buy. A "downward" change in the ROE will most likely have a detrimental effect on stockholders who bought the Krispy Kreme stocks based on their projected profit margins, asset utilization and debt projections.

Another factor involved in the Krispy Kreme restatement is the news that an SEC investigation will be undertaken. As the main concern of a publicly-held corporation ought to be profitability for the shareholders, any potential criminal or Sarbanes-Oxley violations are deleterious to these investors, and would most likely have created hesitation on the part of investors to buy Krispy Kreme if these actions had been announced earlier.

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The potential negative effects of these investigations and restatements will almost certainly decrease the company's ROE as well as projected profit margins.

In light of these detrimental effects, a restatement of company assets, projected profits and debts, and other factors in determining the shareholders' return on equity will almost certainly be harmful not only to the individual stockholders of Krispy Kreme, but to the company as well by reducing investor confidence in the stock. Milton is correct in his reluctance to recommend the stock although he does believe that it will be profitable in the long run due to these factors.

Article: Dennis Milton, The Holes in a Krispy Kreme Rally, Business Week online 1/19/05

http://www.businessweek.com/investor/content/jan2005/pi20050119_0925_pi015.htm.....

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