Parmalat turns sour

By Mike Monnelly & Camilla Palladino

The bizarre tale of Parmalat's finances started as a comedy. The family-controlled Italian dairy producer might have had a bizarre financial structure, a penchant for raising money, and an ability to invest it in strange places but at least it looked fundamentally profitable. Now the comedy has turned sour. The group has made disclosures that raise questions about its profitability, its accounting practices, and ultimately the soundness of its finances.

Parmalat's balance sheet has looked wacky for some time. The company has long had more than € 3 billion of cash and more than € 5 billion of debt - it loses money because of this as the interest it receives on its cash is less than that paid on its debt. The group has been under pressure from external investors to reduce debt.

Things almost came to a head in...