Dolla General

Compare Dollar General's financial performance with that of Family Dollar.

Dollar General has been performing well financially ever since they were established in 1955. In its first 10 years of existence, Dollar General had grown to 255 stores with nearly $26 million in annual sales. In 2002, annual sales were $6.1 billion and there were 6,300 stores in 27 states in operation. Strategy shifts as well as major acquisitions allowed for Dollar General to continue performing well financially over the years. Even despite major accounting errors in 2001, Dollar General continued to increase their sales.

Through Dollar Generals initiative and success, the door was open for others to thrive in the extreme-value retailing industry. One company that was able to take Dollar General's concept and use it for their own success was Family Dollar. Family Dollar is considered to be the main competitor of Dollar General. They have been able to expand faster in terms of geography than Dollar General has, with stores in 41 states. Financially, both companies have been performing well.

Although the number of stores a company may have doesn't always equate to success financially, it usually is a sign that they are performing well. Over the period 1998-2002, Dollar General opened 2,371 new stores compared to Family Dollars' 1,599. Based on this number alone you might think that Dollar General is performing better financially. Over the period 2000-2001, Dollar General and Family Dollar both increased net sales by nearly 17 percent. However, Dollar General increased its net income from $70,642 to $207,513. The nearly 193 percent increase, is far greater than the 10.2 percent increase that Family Dollar experienced. In 2002 though, Family Dollar's earnings per share were nearly doubled that of Dollar General, meaning that Dollar General had a much higher number of outstanding shares. At this point, Family Dollar was probably a better stock to invest in. Dollar General had also experienced a decrease in total assets over this period while Family Dollar's assets increased by nearly 25 percent. The accounting errors that took place accompanied with lawsuits that followed played a major role in some these numbers for Dollar General. I believe that both companies performed well financially. If it wasn't for the lawsuits, Dollar General probably would have performed much better financially then Family Dollar. Based on the factors mentioned above, it's hard to say who performed better financially. Dollar General's net income may have been higher but they had a loss in total assets and also had a much lower EPS.

2. What is your assessment of the accounting problems at Dollar General? Did anything unethical occur? What evidence indicates that the misstatements were simply errors, with no deliberate intent? What reasons can you think of that would account for why the misstatements might well have been deliberate and not simply inadvertent errors?

The accounting restatement was unfortunate for Dollar General but I don't believe it will have had that big of an impact when they look back on it in the future. Their strategies allowed them to keep a profitable company thriving even despite the investigation going on. The accounting problems, however, were very serious and could have led to major problems. The loss in stock value and earnings per share were obvious results of the errors, but were not a major impact.

I believe that the majority of the problems began with the CFO, Brian Burr. His lacking experience in retailing finance may have created all the problems. If the person in charge of finances doesn't know what he is doing, it's going to cause others to not do the right thing, which will lead to problems. I think unethical behavior did play a part. I think that certain directors and officers were withholding information from their accounting firm in an attempt to mislead the auditor. I believe what Deloitte & Touche said about Dollar General's officers was a true statement, but they are still responsible for not acting properly and aiding the breaches of Dollar Generals officers. Firing the firm was the right thing to do in the situation Dollar General was in. Whether or not it started with Dollar General, the accounting firm still made critical mistakes. The accounting errors that were found were incorrectly recorded by the firm either because of lack of knowledge or some form of corruption.

Evidence that points at the fact that the errors were simply mistakes includes the fact that Brian Burr was not very well experienced. His lack of knowledge may have led to incorrect information being issued to the accounting firm. The fact that the information may have just been recorded incorrectly on the part of Deloitte & Touche is also evidence that it might have been a mistake. The fact that Dollar General was able to maintain profitability during these times and make the necessary changes also helps prove that it was just an error. People were not too affected by the situation.

Evidence that points at that fact that is was deliberate includes all the claims by shareholders and the accounting firms.