httpwwwnasdaqcomsymboldnknstockreport Is Dunken Donuts Compa

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Is Dunken Donuts Company is a company showing volatile stock prices? What impact does its current use of debt have on the volatility of its stocks prices? Analyze Dunken Donuts Company stock prices including a comparison to industry averages over the three previous years.

Solution

As can be seen from the daily stock price list, the share price of Dunkin Donuts does not seem to be much of a volatile stock as in the last 3 years the price of stock has shown upwards trend from $45 in 2015 to current price $65 as on 22nd of Jan 2018. Moreover in these three years the stock has reached lowest of $37 which is not very low as compared to $45 at outset of period. This clearly shows the low volatility of the stock in market.

If a company raises debt then it means that it has fixed interest obligation to pay to the debtholders and therefore EPS on the shares will be less. As a result the share will be less attractive to the investors due to which the investors will try to sell the share in market and as result the stock price will fall. However, if a company uses the debt for increasing the future income then the investors are more interested in purchasing the stock as profits are expected to increase with infusion of more debt and as a result stock price will increase. Since stock market is a game of demand and supply, volatility is totally dependent on the use of debt taken.