League Of Nations

League Of Nations The League of Nations was an international association established by the victors of the First World War 1914-1918 as a result of the last point in the Treaty of Versailles of 1919. It was set up to prevent future disputes, protect world peace and ensure security, thus the member states pledged to follow procedures when dealing with international crises. However it was not an easy job to set up an assembly that would have control over all nations, so in the end the League of Nations was not very long-lived, already by 1946 it was dissolved and replaced by the United Nations. An investigation will be carried out, taking into consideration the facts and the aftermath of international affairs, from the early 1920s to the 1940s. The essay will deal with two key questions. Firstly, for what reasons did the League of Nations fail and was it doomed from the start? Secondly, to what extent could this collapse be blamed on the lack of cooperation between Britain and France? The setting up of the World Parliament After the end of the First World War, the Treaty of Versailles was signed in 1919, by Germany and the Allies of the Entente. As the result of this treaty an organization for international cooperation was founded. The American President, Woodrow Wilson was the one who actually drafted its creation and came up with the idea that international arguments should be sorted out and solved by the League which would be like the World Parliament  [1]  . His views and ideas clearly differed from those of Lloyd George and Georges Clemenceau. The League of Nations had a council, which was made up of 4 permanent members Britain, France, Italy and Japan along side the other 38 founder nations. Nevertheless throughout its existence the League did not manage to work up to its expectations of performing wonders as President Wilson has put it. Wilson hoped that the League of Nations would stop disputes and wars, improve peoples lives and working conditions and bring fairness and stability to Europe. However once the League was set up and he returned back home to the United States, he only found that the American Congress refused to join it. The Americans felt that by joining the LON they would be dragged into other countries conflicts and problems, which was not something they needed, thus they pulled out. This was just the very first weakness of the so called World Parliament.  [2]  The absence of the United States was not only a bitter blow which created a sense of incompleteness, but it also led to the major glitch in the Global Representation of the League. The United States was the driving force behind the LON and now there also would be no financing from their side. The League was all about embodying every nation and seeing that USA turned the LON down, any other minor member could feel like they had the right to leave any time. In 1922, it felt like the League was made up of sub nations since the worlds most powerful countries were not involved. The USA, the USSR and Germany were not members which left the League not as strong as it should have been and having an incomplete membership. Among other things the League did not have an army which was a big thing since their aim was to stop disputes and wars, the question arising, was whether they could do that if they had no fear -authority. Thus they relied on the members for military assistance who in turn refused to send their people to fight and for foreign lands, when they had no interest in that. The Treaty of Versailles left unhappiness, grief which stimulated jealousy, resentment and rivalry.  [3]  The inter-war economic situation exaggerated political reactions, condemned democracy and constitutionalism needed for lasting settlement. It slowly failed because there were no adequate guarantees. The Treaty of Versailles along with other treaties passed through the LON, were slowly going bankrupt and losing support. The International Labour Organization (ILO) failed too, in its attempt to convince the nations to adopt a different working policy. The League was already in danger of losing its popularity and authority. The Leagues aim was to maintain collective security and replace international anarchy. From the start it was supposed to be an organization that would use economic and military sanctions to stop aggressors. However the sanctions did not work since some nations managed to find ways to get around them, thinking that they would solely lose out on them. In 1931, at the time of the Manchurian crisis the League could not even agree upon the economic sanctions and later on in 1935, it failed again when attempting a ban on the sale of arms, rubber and metals to Italy, when the French and the British opposed these sanctions. They believed that this move would lead to Mussolini allying with Hitler. Also the League of Nations had been obliged to introduce a reduction of the armaments to the lowest, allowable for safety, level. A lot of time was put into this along with the effort from the Allies who have been bound to disarm together with the losers of the WWI. This was thought to be a step towards future peace development.  [4]   The problem with this however was, that the policy failed later on in 1923 because Germany refused to have lower armaments than everybody else. This led to other countries going against and bypassing the disarmament. This showed that there was not enough commitment and effort involved in the International decisions and actions. Another major difficulty for the League was handling disputes and solving problems. The specialized parts of the LON needed to cooperate but at the time of crisis they could not come to common understanding and decide on what was best for society. Also the decisions made within the League were unanimous which made it even harder for the organization to act out, it took them a long time to do anything and they were too slow to react. There were quite a noticeable number of international arguments in the years of 1919 to 1935 not dealt with properly, by the League of Nations for various immoral and to some extent, self-centered reasons. Too much pressure on the League of Nations The first instance of the Leagues passiveness is seen in early 1919, when the Italians took over the Fiume Port, which was previously granted to Yugoslavia by the Treaty of Versailles. The League of Nations did nothing despite the fact that it was their duty to prevent aggression and keep peace. In the end, an Italian by the name of Gabriele DAnnunzio governed the newly taken over port for over a year. Later on that same year, Poland and Czechoslovakia fought over Teschen Silesia, which was a bordering region between the two countries. The area was rich in iron, coal, railway lines, and a notable part of the Silesian coal fields and since both nations were just recently created, they both felt the need to strengthen their economies by acquiring Teschen. When the League was summoned to help solve the territorial dispute, what it did was just divide the region, among the two countries. Poland was unhappy with what they got and ignored the Leagues decision. The two countries argued over this issue for years to come. After 1919, town Vilna was considered to be the Capital city of Lithuania. However about 30% of the citys population was made up of Poles. In 1920, the Polish took over Vilna and when Lithuanians asked the League for help, it failed at making the Poles withdraw. They stayed in town until the start of the World War II. The League of Nations was once again powerless. We can see how many times within the same year the League failed at doing what it was created for. The second time the Polish broke the rules of the League, was in 1920. Poland invaded Russia and its army conquered Russian land. By 1921 the Russians finally signed the Treaty of Riga, agreeing to hand over financial compensation, railway materials and nearly 80 000 km2. The League of Nations did encourage them to make peace, however it did nothing to stop the Poles. Since Russia was communist, they would only gain advantage from such an operation, because they feared it and wanted to prevent it from spreading. To countries that were not members of the League, it might have seemed like the LON was selectively picking who is good enough and who is not to get help. This was another failure since it only angered the Russians and made them more hostile towards the Allies. Since the end of the First World War, one of the conditions of the Treaty of Versailles was that Germany had to pay reparations for the losses and damages that it had caused.  [5]  However when the Germans failed to do so in 1922, the anti-German feeling in both France and Belgium grew. Ignoring the laws of the League of Nations, both being members, France and Belgium invaded the Ruhr an important industrial area in Germany. But the arising question was whether the League would stop them. France was one of the main members and yet one of the aggressors. Britain could not afford to stand up against its powerful associates. The League failed this time, twice. Firstly and fore mostly because it broke its own rules and secondly, because of the example that was set for the other countries. This was not the first time that something like this happened, this was the second alarming authority-defying example the members of the League have set. Another dispute occurred in 1923, when an Italian commander Enrico Tellini, together with his assistants, was murdered on the border of the Greek territory. The Italians were sure and blamed the Greek nationalists for attacking their general. On the other hand the Greeks blamed criminals from Albania. Italy then demanded reparations and to be allowed to deal with the murderers, but the Greeks could not identify and find the killers. This sparked off an Italian attack on the Greek island of Corfu. The assassination of their General was not even the real reason, they have concealed the true motive all along. When Greece appealed to the League for help, the LON did not do anything but directed the matter to the Conference of Ambassadors who forced Greece to comply with Mussolinis conditions.  [6]  This was another failure since everybody knew that the Italians were just looking for an unjust excuse to invade Corfu and gain its coastline entrance position to the Adriatic Sea. Later on, in 1928 nearly all nations decided to sign, the Kellogg-Briand Pact. The pact prohibited any aggression and use of war unless required in need of self-defense. However the Pact of Paris did not live up to ideal expectations and did not succeed at preventing war.  [7]  It proved to be ineffective and did not manage to prevent the two future conflicts which together in turn sparked off WWII. These two were the real tests for the League. After the years of Depression, Japan still remained under its effects. She tried to overcome this by strengthening her empire although she lost many of her markets. This resulted in the Japanese searching for raw materials and trade markets. The province of Manchuria seemed perfect since right before; the Japanese had a strong economic presence there. Once the Japanese invaded Manchuria, the Chinese turned to the League of Nations for help. So what the League did was sent in, officials to Manchuria to analyze and study the root of the problem. They were very slow, it took them one year to do that and finally in 1933 Japan was ordered to step back and leave Manchuria. At the time the League did not seem as much of an authority any more which resulted in the Japanese ignoring the Leagues command. The League could do nothing about it. Japan was considered to be the greatest power in Eastern Asia and many countries supported trading with her. The Allies did not want a war and the LON cou ld not even impose sanctions. The League of Nations has yet terribly failed at encouraging peace. The other major problem of the League was that it seemed to be scared to anger the aggressors, instead of having a higher position of authority to suppress the assailants it just stayed neutral not to make them resentful. Benito Mussolinis idea of glory and popularity led him to believe that he could do anything he wanted. In 1934 he laid his eyes on the only African territory which was left without any control by the European Colonial Authority Abyssinia.  [8]  Italians had a previous encounter with the Ethiopians. In the year of 1895, Italians lost a humiliating battle and now were keen to get revenge. When Haile Selassie appealed to the League for help, the LON talked to Mussolini but with no success. He would not compromise and just ignored them and used the moment to his advantage to send an army into Africa and invade Abyssinia. The League tried putting sanctions but those did not work, there was nothing else it could do, because Mussolini was considered a potential ally against Hitler and the LON did not want to risk making him resentful towards the Allies. This was the last straw, after the Manchuria and Abyssinia crises the people just saw the League as a useless fraud, and once Hitler actually started to break the Treaty of Versailles there was no other way but to start off the World War Two since it would be the only way to stop him. All these unresolved disputes led to one another and in the end there was nothing left to do but to go to war. Also among the Leagues many failed crises there were the failed treaties and the Locarno Pact of 1925. The Washington treaty was a naval-limiting agreement signed in 1921 by Britain, United States, Japan, France and Italy; but it failed when the naval restrictions merely became unrealistic in the 1930s. The Dawes plan of 1924, that made Germany dependant on American loans failed when USA demanded the money back after going through a Depression and still did not get much back.  [9]  And finally the Geneva Protocol of 1925, proved to be ineffective when the disputes broke out. The lack of cooperation between the two main members of the League One of the big problems that the League of Nations faced was the fact that it had no army and thus it depended fully on Britain and France once USA did not join. And as a matter of fact, these two members were unwilling to share and help the League. Britain and France were very passive and as long as their own interests were not involved they preferred to stay in the dark.  [10]  They did not feel the need to or even want to use sanctions which as the members of the League they should have supported. Many historians fully blame France and Britain for the Leagues failure. They believed that since the USA was not a member, all the responsibility of taking control of the League lay on Britain and France who felt like they had their more important responsibilities towards their nations, outside of the organization. They ignored what had to be done to keep international peace and instead put their own priorities first. France feared Germany and did anything to ensure self-security because of suffering great devastation during the war, whilst Britain plainly concentrated on strengthening her empire.  [11]  These two members were the heads and yet they were not fully willing to commit. And what organization can survive without somebody managing it properly and willing to put in enough work and effort to run it especially when the heads of that organization fail to work together and fight towards the same goal. If we closely look at the crises that the League of Nations faced, we can see a pattern. In many of the cases the leaders of Britain and France were the ones to stir trouble. Taking the Vilna Crisis as an example, where France actually wanted to keep on the right side of Poland since she saw it as a potential ally against Germany and Russia in case a war would arise and as a buffer zone against communism. Britain was never prepared to act alone which resulted in the League not taking action against the aggressors. The two countries acted without thinking about the League and what was best for it. The main problem however was that the two members were unable to work together and thus bring any efficiency to the League of Nations. Each one had their own priorities and a lot of times they failed to reach agreements and come to compromises regarding the problems of Europe after the war. They clearly had different ideas of what the role of the LON was. As mentioned before France feared that Germanys bigger number of population would be a threat to her own, whilst Britain saw it as a commercial opportunity towards a quick and efficient economic recovery. Despite this being the time when the French needed the British support in case of a future encounter with Germanys aggression, Britain was not so keen on disarming Germany, which once again posed a threat to the entire stability of Europe. Both countries were obliged to show support for the LON in public, but really when in private they felt deep cynicism and pessimism for the organization but more importantly they had no faith in it. In order to properly understand the relations between Britain and France we have to consider looking at their past. During the years of the First World War, the British and French were allies and worked against the Central Powers. They strongly co-operated towards a common goal and in the end when the war was over they both were the victors. Immediately after the war, the British and French had been co-operating together, as their interests were very similar. They both needed countries like Germany and Russia weakened since they posed a bug threat to their nations and to the spread of Communism. Another similarity between them was that they both needed each other if they were to expand and strengthen their empires. At some point, there even was a very strong popular feeling in Britain towards France and when the leaders visited each other at latter countries they got warm receptions.  [12]   When the League of Nations was created, they both were the heads, and they had to accept the defense of countries between themselves. However after a while France started to see itself as a very powerful independent stand-alone power whilst Britain did not want to risk losing close relationships with Australia, Canada and New Zealand. This caused tension between the two and at one point the British were even thinking about free trade which would put France at stake by placing tariffs on its goods. Analysis There are various reasons as to why the League of Nations failed. The main ones being that it did not have enough support and a driving force willing to push it on. As a historian by the name of A.J.P. Taylor once said The League died in 1935. One day it was a powerful body imposing sanctions, the next day it was a useless fraud, everybody running away from it as quickly as possible. Hitler watched.  [13]  The actual idea of the League ensuring peace was great but since most of the member nations put their interests and priorities first, the League of Nations Failed. From the very beginning it was Wilsons idea to set up the League but then America was the one strongest nation whose presence was noticeably yearned. The league could not act alone and it was based and dependant on the two main members, Britain and France. This is where the bigger question comes in. Should these two be completely blamed for the collapse of the League? The answer is to a certain extent.  [14]  They only dealt with the smaller, weaker countries and did not dare to stand up to aggressors because they felt threatened. However that was not the main reason behind them being blamed. It is one thing when they do not feel secure and try to protect themselves and it is a completely different thing when they are not willing to work together even though the World Parliament relies on them. Japan and Italy betrayed the League thus Britain and France were its last hope. Nevertheless although Britain and France did not really betray the League, neither did they try to strengthen it and help it.  [15]  By invading the Ruhr, France let the Leagues authority down. Another example would be the Abyssinian crisis where Britain and France were the ones who actually confidentially gave up Abyssinia to Italy. The longer they kept this up, the less everybody believed and put their hopes in the League. At the end everybody just started to ignore it. Another factor was the Great Depression which made every country fight for itself and try to gain more and more power. The problem was that Britain and France were allies and had the same level of authority within the League but at the same time they lacked cooperation. Many times the two nearly went against each other to support their own self-interest only to be stopped by their own self-conscience that they needed each other.  [16]   One historian said It is not altogether impossible to bring the French and the British to see eye to eye- only their eyes are so different. It could be reasoned that Britain and France were at fault for the Leagues failure because had they cooperated more and worked their way up towards a common goal, together they might have been strong enough to stand up to the aggressors and prevent the crumpling of the world peace and the League of Nations. It was also said that the League was merely a field that Britain and France chose to fight on. On the other hand one can argue that other countries played a big part in the LONs collapse too and no matter how strong the bond between the two main members would have been nothing could have prevented the Leagues collapse and thereby the start of the WWII. All the crises that the League had to go through were not just the result of the lack of cooperation between Britain and France, but also the never-ending desire for more power within other strong countries like Germany and Italy, whose leaders knew just how to use the moment to manipulate others to get what they wanted. Conclusion In conclusion we can see that all of the events and crises that occurred in the inter-war years contributed to the fall of the League of Nations. However the most notable reason was the inability of Britain and France to effectively work together without competing against each other for full domination. Their mistrust, constant divisions and preoccupation with only their own affairs had cost the League some serious lack of development and effective performance which in the end resulted in a stalemate leading to new disputes and in 1939, the start of World War Two.

GM crops Essay

For thousands of years farmers have used a process of selection and cross breeding to improve the quality of our crops. The problem with GM crops is that there is little known about what effect they will have in 20 years’ time. The genetic structure of any living organism is complex and GM crop tests focus on short-term effects. Not all the effects of introducing a foreign gene into the intricate genetic structure of an organism are tested. Will the pests that a crop was created to resist eventually become resistant to this crop? GM crops may also pose a health risk to native animals that eat them. The animals may be poisoned by the built-in pesticides. Tests in the U. S. showed that 44% of caterpillars of the monarch butterfly died when fed large amounts of pollen from GM corn. Very little scientific information exists about the risk of GM food on human health. One major report by Dr. Arpad Pusztai, explains how GM foods could trigger new allergies and contain toxins that may be harmful. Another concern is disease. Since some crops are modified using the DNA from viruses and bacteria, will we see new diseases emerge? What about the GM crops that have antibiotic-resistant marker genes? Marker genes are used by scientists to determine whether their genetic modification of a plant was successful. Will these antibiotic-resistant genes be transferred to microorganisms that cause disease? We already have a problem with ineffective antibiotics. How can we develop new drugs to fight these new bugs? Then there is always the possibility that we may not be able to destroy GM crops once they spread into the environment. Proponents of GM crops claim that advantages may be many, such as: Improved storage and nutritional quality Pest and disease resistance Selective herbicide tolerance Tolerance of water, temperature and saline extremes Improved animal welfare Higher yields and quality Cross-pollination is a concern for both GM crops and conventional breeding, especially with the more serious weeds that are closely related to the crops. With careful management this may be avoided. They are an ever-increasing problem and genetic engineering promises to stop it. But will genes from GM plants spread to other plants, creating superweeds and superbugs we won’t be able to control? When looking at the environmental impacts of grass- and grain-fed beef, â€Å"there is a 500% increase in greenhouse gas emissions for each pound of beef produced from grass-fed compared to grain-fed cattle. Uncontrolled nitrogen and phosphate release to the environment, 35% more water use, and 30% more land use for grass-fed cattle compared to grain-fed increases the environmental impact of strictly grass feeding. † Cholesterol content does not differ between grass- or grain-fed beef. Today, there is an estimated two-thirds of all our products in supermarkets contain genetically engineered ingredients, including; tortilla chips, drink mixes, taco shells, veggie burgers, muffin mix, and baby formulas. But only one-third of Americans are aware that their food contain genetically engineered ingredients, despite the findings of surveys that 85 to 90% of consumers want clear labeling of all genetically engineered foods. Because labeling is not yet required by government regulations, nor practiced by biotech companies, there is absolutely no way for consumers to know what it is that they are eating. The public has not been educated of the inadequacy of genetically modified ingredients in their diets and the possible risks that these foods may entail. The credibility of these geneticists is also questionable because almost all established molecular geneticists have some industrial ties limiting what they can research on, particularly with regard to safety. There is no way of knowing the overall, long-term effects of genetically engineered foods on human health. This unpredictability appears to be causing the most controversy over genetically modified foods, as there is insufficient evidence and need for further research. The effect of the insertion on the biochemistry of the host organism is unknown. The effect of the genetically engineered organism on the environment is unknown. The effect of eating genetically engineered foods is unknown. There is no basis for meaningful risk assessment. There is no recovery plan in case of disaster. It is not even clear, who, if anyone will be legally liable for the negative consequences. There are no consequences among scientists on the safety or on the risks associated with genetic engineering in agriculture. The international community is deeply divided on the issue. In addition to these, genetically engineered foods may cause the removal of important food elements. For example, genetic engineers may intentionally remove or inactivate a substance they consider undesirable in a food, which may have unknown but crucial qualities, such as cancer-inhibiting abilities. Examples such as this are perhaps especially frightening because of the potential to find cures to some of the illnesses and diseases that have already laid claim to many lives. Failure to do further research in this case would be a shame, as it could lead to an elimination of possible breakthroughs in medicine and health. The current state of biotechnology must be fixed because every living organism is affected by it because everything is composed of genes. If the food being consumed contains products of genetic modification, the public is at risk to the unpredictable effects on their own physiology and biochemistry-effects that may not be reversible. Not only could this cause problems in their own lives presently, but it could also affect future generations, in ways that are unforeseen yet preventable. Moreover there is not enough understanding of the principles of genetic engineering to categorize those genetic modifications that may pose a risk and those that may not because genes appear to react in diverse ways when spliced with other genes. Genes are a part of an extremely complex and interconnected network and are constantly reacting to their environment. Further research must be enacted, and biotech companies and the government must do their moral/ethical duty to inform the public, because ultimately, they are the ones making the decisions.

Krispy Kreme Doughnuts, Inc. Essay

Krispy Kreme Doughnuts, as discussed in Darden Business Publishing Case UVA-F-1479, appears to be at a crossroads. After years of astronomical growth, the company find its share price plummeting in the midst of discoveries about faulty accounting practices. The following paper examines several issues behind the sudden decline First, the historical income statements and balance sheets are examined to determine the financial health and current condition of the company. This is followed by an analysis of key financial ratios across time and versus industry standards. Next, the paper addresses if Krispy Kreme is financially healthy at year-end 2003 and, if so, what accounts for the firm’s recent share price decline. The paper concludes with a discussion of the intrinsic investment value in the company. Income Statement and Balance Sheets Close review of the income statement leads to some noteworthy conclusions. The first quarterly column of the 2004 income statement shows that the company gained thirty-four million dollars in discontinued operations from the sale of the Montana Mills venture. In the same quarter the firm lost approximately twenty-four million dollars. It is likely that this maneuver was made to deflect attention from or make up for the company’s poor performance and mounting losses. Generally, this is not a sign of a healthy company but rather signals an alarm since the loss in that quarter was closer to fifty-eight million dollars when not considering the sale. Krispy Kreme may have been struggling to make ends meet through its operations, and perhaps the company hoped to make up lost income through the sale of a venture. Furthermore, operating expenses were increasing while net income was decreasing. In May 2004, the company had seven million dollars in closing costs and still showed losses. An aggressive expansion strategy did not result in enough income to cover these costs. Additionally, quarterly comps decreased dramatically. From May 2003 to May 2004, operating income dropped from $23,702 million to $18,636 million. This decrease is even more pronounced when examining the quarters ending in August. Krispy Kreme’s balance sheet is no less indicative of poor financial health, particularly with a substantial increase in year over year long-term liability figures. The two major contributors to this increase in long-term liabilities include Krispy Kreme’s revolving lines of credit and its long-term debt. First, the revolving lines of credit greatly increased from nothing in fiscal year 2002 to eighty-seven million dollars in fiscal year 2004, demonstrating a burgeoning dependence by Krispy Kreme on outside finance to support operations. Second, long-term debt increased from 3,912 million in 2002 to 48,056 million in 2004. This anomalous and significant increase in long term debt could mean that Krispy Kreme is having trouble paying off its debt. After analyzing both the income statement and balance sheet an initial assumption can me made that Krispy Kreme does not appear to be financially healthy. The next step of understanding this case is to determine how financial ratios extend our understanding of the abovel statements. Financial Ratios The following financial ratios were analyzed: quick ratio, current ratio, return on assets, return on equity, net profit margin, receivables turnover, inventory turnover, asset turnover, cash turnover, debt-to-equity, and times interest earned. These ratios are included in a time series (Case Exhibit 7) raise and in a cross-sectional chart of quick-service restaurants (Case Exhibit 8). To begin, the time series ratios are detailed in Figure 1. Starting with the liquidity ratios we noticed some significance in the changes of the current ratio. The increases in the current ratio in 2003 and 2004 signal that Krispy Kreme is borrowing over the long term, not the short term, resulting in an increase of cash affecting assets. The current liabilities would not be affected by this increase in cash or long term. This corroborates the balance sheet, as with the current ratio rise we see a gain in cash and cash equivalents plus a gain in long term debt. Figure 1. Krispy Kreme Analytical Financial Ratios The debt-to-equity ratio in 2003 and 2004 imply the company is also using more long-term debt from shareholder equity to run the company. In 2004, the balance sheet shows a jump in the number of share of common stock. The selling of more stock to pay for long term debt is not usually a good signal to investors. It may mean a corporation wants more cash to finance activities, which in conjunction with other figures could mean it is trying to offset some losses. A lower times interest earned ratio may also mean fewer earnings are available to meet interest payments and that the business is more vulnerable to increases in interest rates. This ratio has declined dramatically since 2002. Negative findings of the company are apparent when looking at the activity ratios. The receivables turnover ratio has been declining since 2001. This decline in receivables turnover implies that company is not being as efficient in the collection of accounts owed as it should be. Not collecting the credit in a timely manner means that they are not gaining interest for the firm, but potentially giving others a free loan for the time being. Furthermore, the asset turnover ratio for Krispy Kreme has been declining since the company went public in 2000. As seen in Figure 1, the ratio was at a high in 2000 at 2.10 and is not at 1.01 in 2004. This lower asset turnover ratio signals that the company is not doing well in using its assets to generate sales. The final subcategory in the time series ratio analysis are the profitability ratios, which show some positive signs for Krispy Kreme. The return on assets ratio is relatively stable at 8.64% in 2004. Krispy Kreme is still doing relatively well by using current assets to generate income. Unfortunately, the return on assets has come down from a high of 10.33% in 2002, a signal to investors that Krispy Kreme is not ameliorating its use of assets to create income. However, the operating profit margin ratio displayed a steady increase for the company, resulting in more operating income for every dollar of sales. The increasing net profit margin also shows Krispy Kreme is generating more profit for every dollar of sales. The change from 6.81% to 8.58% in 2004 shows that Krispy Kreme is now making another 1.7 cents per dollar of sales. Examination of the financial ratios between Krispy Kreme and its peers in the quick-service restaurant industry reveals a few key facts about the company’s financial state. Foremost is the relatively high liquidity index of the corporation as measured by both the quick and the current ratios. Compared to a respective mean of 0.80 and 1.17 for each aforementioned ratio, Krispy Kreme weighs in at 2.72 for the former and 3.25 for the latter – approximately three times the average. As these figures measure a firm’s ability to pay bills in the short term without stress, it may not be farfetched to suggest Krispy Kreme has liquefied many of its assets to satisfy the doubts of short-term creditors. This band-aid solution may be short-lived, however, since current assets and liabilities are never a dependable tool for forecasting. Exorbitant liquidity also suggests an ineffective use of cash and other short-term assets and a lack of borrowing power. The other noteworthy aspect of these industry ratios is the low level of turnover on both receivables and inventory. Krispy Kreme’s receivables turnover ratio of 9.70 is about four times smaller than the mean of 37.51 for most quick-service restaurants. This is possibly an indication of the firm’s inability to collect on its due bills. Inventory turnover for the corporation is at a ratio of 17.76 versus the industry mean of 64.70, also about four times less than standard. Low inventory turnover can signify a poor management of said inventory. Combined with poor cash management, this spells trouble for investors. Nevertheless, there is a redeeming factor for the corporation, although given the looming sale of several stores, it may not be one that lasts very long. The profitability ratios of Krispy Kreme are comparable to those within the industry, and a good set of such ratios is a reflection of how efficiently a firm uses its assets and how well it manages its operations. In order for Krispy Kreme to make good on these numbers, it will need to convince creditors of its long-term solvency and improve its turnover. At the end of fiscal year 2003, the financial health of Krispy Kreme is neither stellar nor abysmal. The company has several indications of future tribulations that it needs to sort out, but from a financial standpoint it is relatively in good standing and could be said to pass the litmus test of profitability. Some symptoms it needs to examine include its acutely high short-term solvency. Does the firm find itself liquefying at an excessive rate to satisfy short-term creditors? If so, the company needs to reduce the scale of its operations and cut costs until longer-term loans are able to be secured. At that point, it may be able to grow again without the burden of investor and media hype. Furthermore, the firm needs to apply pressure to its debtors and try to improve its receivable turnover ratio. In this way, Krispy Kreme may be able to raise more capital and manage its assets more effectively. Finally, with the increased scrutiny and speculation concerning the company’s financial reporting, it should seriously address these concerns and restore investor confidence before stock prices continued to decline. Stock Price Evaluation Given Krispy Kreme’s mixed financial health, what accounts for sharp decline in it’s share price? On May 27, 2004 Krispy Kreme announced poor results for the first time in its history as a public company. Earnings were down 10% due to the trend toward low carbohydrate diets, or at least as reported by the company . Krispy Kreme decided to divest Montana Mills for $40 million in stock and also planned to close three of its new Hot Doughnut and Coffee shops. The Wall Street Journal published a negative story on the accounting principles that Krispy Kreme used for franchise acquisitions. The company also had to pay Michigan franchise’s top executive $5 million as part of a severance package. On July 29th, U.S. Securities and Exchange Commision (SEC) launched an informal investigation on â€Å"franchise reacquisition’s and the company’s previously announced reduction in earnings guidance.† In September 2004, Krispy Kreme announced that it would reduce number of new stores from 120 to around 60. In the beginning of 2005, the company announced previously issued financial statements for fiscal year ended 2004 would be restated to correct certain errors. Krispy Kreme then delayed the filing of its financial reports until the SEC’s investigation had been resolved. Numerous problems, both salient and hidden, tarnished once-optimistic forecasts for Krispy Kreme, changing it from a solid company to a risk. Investors have now lost confidence and the share price has steadily dropped. Although the company’s actual financial health may have been more benign, public perception has been sullied nearly irreparably. Intrinsic Investment Value Barring incisive and insightful financial analysis, there must be a source of intrinsic investment value in the company which can be gleaned from financial statements. The perceived quality and expectations of the investors hass a strong influence on this innate value. If the investors feel that a company will be profitable the intrinsic value will likely increase and vice versa. Intrinsic value also has much to do with brand image, as in Krispy Kreme’s distinctive green and red vintage logo, it’s â€Å"Hot Doughnuts Now† neon sign and the perceived quality of the doughnuts. These accoutrements drive traffic and sales, two key indicators of a food service company’s health. Furthermore, the central Krispy Kreme retail concept, The Factory Store, is a prime contributor to intrinsic value. Krispy Kreme creation of â€Å"a doughnut theatre† illustrated by custom machinery and doughnut viewing areas is a significant point of distinction from its competitors by offering more than just a product but a complete experience. These subtle differences add to the Krispy Kreme mystique, which adds a level of perceived quality. Conclusion The brief history of Krispy Kreme since its IPO in 2000, reveals a company that has already seen its ups and downs. These undulations characterize the growth of many such firms. Several conclusions on the state of Krispy Kreme Doughnuts can be drawn from the Darden School case. First, Krispy Kreme is a company that is moderately healthy, but seems to be turning for the worse. Second, a time series profitability ratios suggest good health, but peer-to-peer current and quick ratios show a startling scramble to meet short-term obligations. Third, in an era of high-profile accounting scandals, clandestine reporting practices scare off investors, leading to Krispy Kreme’s decline in share price. Finally, Krispy Kreme may be able to trade on its brand equity to leverage poor financial practices.

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