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Unformatted text preview: s in new U.S. and international markets. Its timing was particularly good:
Investors were looking for an alternative to dot-com high fliers, and the company’s popular brand
and product appealed to many different types of consumers. Krispy Kreme’s financial condition
was also strong. Sales growth—24 percent for the period 1998–2001 and a projected 5-year rate
of over 26 percent—was well above its peers in the retail restaurant industry. Net income and
EPS were beginning to climb as the company brought new stores online. Its capital structure (the
mix of debt and equity used to fund the company) at October 31, 2001, consisted of $9.7 million in
long-term debt and $175.8 million in stockholders’ equity. With a debt-to-equity ratio of just 5.2
percent (extremely low compared to the industry average of 92 percent) and a times interest
earned ratio of 122, Krispy Kreme has plenty of flexibility in its capital structure.
Is a capital structure consisting mostly of equity better than one with...
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