KK generated revenues through four primary sources: on-premises retail sales, off-premises sales, product mix and machinery, and franchisee royalties and fees. However, as its market getting bigger yet the business strategy getting radical and unclear, KK gradually got itself into trouble. The crisis revealed on 2004 when the company’s earning was overestimated by the investors. A series of remedial measures were adopted which, unfortunately, had little effect. As the KK’s troubles mounted day by day, the majority of the analysts began to be pessimistic about the company’s stock and future.
Profitability ratios for Quick-Service Restaurants at End of FY2003 5 The chart above shows that the return on assets and the return on equity for KK in 2004 were similar to the average industry level. It implies that the ability of the firm to use investment funds to generate earnings growth and to be profitable before leverage was on an average level, from which we could draw the conclusion that the revelations about the company’s franchise accounting practices were far less sufficient to drive that much value out f stock, as showed in the exhibit