Signet Jewelers Ltd. SIG 0.57% shares are down more than 6 percent on Thursday following a report by Grants that Signet andSnap-on Incorporated SNA 0.31% are generating much of their growth from internal lending and deceptive accounting.

How has Snap-on been able to generate such impressive growth in recent years? Jefferies analyst Evan Lorenz says internal lending is playing a huge role.

“Over the past five years, finance receivables have grown at a compound annual 16.7% growth rate, almost double the annual growth rate in Snap-on Tools Group’s sales,” Lorenz notes.

Grants points out that Signet’s seemingly healthy balance sheet also may very well be smoke and mirrors due to creative accounting.

On the surface, Signet reported that nonperforming loans comprised only 3.6 percent of gross receivables on April 30. However, Grants gives an example of how that number could be very deceptive.

“Say that you owe $1,000 on June 30, but you pay $500 instead, and that you pay it on time. Because you have made a ‘qualifying payment’ by the due date, your account is considered…

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