Pets.com, Inc.: Assessing Financial Performance and Risks in the e‐Commerce Industry

Pets.com, Inc. (Pets) was formed as an Internet retailer of pet supplies in 1999. After experiencing rapid sales growth and hemorrhaging cash in it s first year, an initial public offering (IPO) was scheduled for February 2000. In this instructional case, you will evaluate the ability of this real‐world company to continue as a going concern by analyzing the financial information and business risk disclosures included in Pets' Prospectus. The case is ideal for an auditing class as it provides a background to examine how going concern and fraud risks impact the audit reporting decision. A focus on corporate governance issues, financial statement analysis techniques, bankruptcy prediction models, and e‐commerce company business models would also make this case useful for financial accounting courses (e.g., accounting theory and/or financial statement analysis).