Boston Chicken Case

Boston Chicken implemented a franchising strategy that differed from most other franchising companies at the time. Boston Chicken focused its expansion through franchising the company through large regional developers rather than selling store franchises to a large number of small franchisees. In that, an established network of 22 regional franchises that targeted their operations in the 60 largest U.S. metropolitan markets and in order to do so, the franchisee would have been an independent experienced businessman with vast financial resources and would be responsible for opening 50 – 100 stored in the region. Boston Chicken focused on widespread continuous expansion of its operations to become to developed across the board food chain. Scouting for real estate assured the highest standards for developing properties and was critical to the company’s future success. To assist in future growth of the franchises, Boston Chicken implemented a communications infrastructure, which provided a supporting link for communication between its networks of stores. In addition in efforts to improve operating efficiency, the company locked in low rates from its suppliers and developed flagship stores, which did most of the initial food preparation which inadvertently reduced employee training costs. Many of these regional developers were given a revolving credit line to help support expansion. This type of financing came with credit risk while the franchises average revenue from operations were not sufficient enough to cover the expenses which raises doubt for the repayment of such loans. 2. The accounting policy of reporting the franchise fees from Boston Chicken’s area developers as revenue seemed most controversial. These franchise fees, which accounted for more than 50% of total revenue, did not represent revenues from operations. Also, the source of most of the ranchise fees came from the financing provided by Boston Chicken, the franchiser, where the money coming in was the same money that was going out. This overstated earnings of the company. Since the debentures can be converted into shares of common stock, most of the revenue from franchise fees should have been deferred. Reporting revenues that included these franchise fees his the fact the most of the franchised stores were operating at a loss, which provided a false impression to investors. While Boston Chicken, the franchiser reported a net income from operations of $24,611 in 1994, if they excluded the income provided by franchise fees, they company-operated stores would have been operating at a loss, which would have been a more accurate picture for the company’s operations and its question of having a profitable future. 3. Boston Chicken, the franchiser, reports revenue based on franchise fees (includes royalties, initial franchise development costs, interest income from area developer financing, lease income, software fees, and other related franchise fees), and company operated stores. The revenue reported on the income statement does not reflect the operating income or losses generated by the area developers, with most of these area developers operating at a loss. Since the franchiser provides financing to the area developers, it seems that consolidation of the financial statements would provide vital information to the users of the financial statements especially since the repayment of loans relies heavily on the profitability of the franchisees. Basically, Boston Chicken was not reporting the results of operations from its area developers because Boston Chicken did not have an equity position in these firms; rather their stake in these franchises was reported as debt financing. In doing so, Boston Chicken did not have to report the losses that were incurred in these operations. By manipulating the financial statements, the company gave a false impression on its future prospects of the company, allowing them to more freely raise capital through the issuance of common stock, and inadvertently inflating tock prices. 4. The balance of notes receivable from area developers as of December 25, 1994 was at $201,266. Of this amount there was no allowance for loan loss and as a result, revenues would be overstated. With the high probability of uncollectibility on notes receivable due to the majority of operating losses of the area developers, creating an allowance for loan losses would more accurately reflect the financial position of Boston Chicken. Even with just a 25% allowance for uncollectibility the company would be operating at a loss of $25,714. 5 7. In the financial information provided in the case for 1994, Boston Chicken’s Operating profit for the year was $24,611, and net earnings $0. 38 per share. In 1995 Operating Profit for the year increased to $67,238 and net earnings to $0. 66 per share. Boston chicken continued to recognize profits in 1996, but was forced to amend its reported profits in May of 1997 due to improperly stating revenues. In 1998 the company files for Chapter 11 Bankruptcy and was subsequently purchased by McDonalds Corporation in 2000. As seen in Table 1 on the following page, it seems that since around the 2nd Quarter in 1997 to mid 2004 the stock price of the plummeted from around $50 per share to under $1 per share. At the time the stock price dropped drastically to $0. 00010 per share. In 2007, the company was sold to Sun Capital and went private. 6. After the company filed for bankruptcy, the stock price took a huge hit. In 1999 the company searched for a buyer as its stock price continued to steadily decline. As you can see in Table 1, trading volume drastically fell during the 1999 – 2000 period, and showed an increase in 2000 when McDonalds Corp purchased the company.

Law Relating to Payment and Trade Finance Essay

Law Relating to Payment and Trade Finance - Essay Example Hitherto, investors and other traders who wanted to do cross border or international trading (import and export) had to go through stringent bureaucracies and processes that killed the enthusiasm of most of such investors and traders. Today, the situation is quite different as a lot more people are gaining the interest to go into international trading. The need to make cross border trade and commerce as flexible as possible not withstanding, there are certain basic regulations that remain unchanged and would perhaps remain unchanged for a very long time. One of such regulations is the mode of international trade financing and payment. Though the processes are not as stressful as before, international traders are still required to follow basic international trade financing systems that are governed by law. This write-up therefore seeks to examine the role of some of the most common international trade financing and payment methods in addressing the currency global credit crisis. What is international trade finance and payment? Organisation such as the International Monetary Fund and World Trade Organisation have devised laid down procedures and structures that need to be followed whenever trade and business transactions have to take place across borders. Such trade that take place across borders are referred to as international trade whereas the funding or financing of all forms of products, good and services that are involved in such international trades are referred to as international trade finance or simply put, trade finance. According to the Business Money (2011), â€Å"Trade Finance is the science that describes the management of money, banking, credit, investments and assets for international trade transactions.† This means that the financing of trade across borders is just more than giving out monies for goods that one wants to buy. Rather it reaches an extent where the entire process is described as management. Instead of just giving out money t o pay for goods and products, one has to device means and follow processes that ensure that the money is managed by taking the payment process through a couple of processes, involving institutions such as banks and insurance. It is therefore in the right direction that the Investopedia (2009) notes that â€Å"trade finance looks at banks, credit agencies, insurers, forfaiters, and any other person or institution who enables importers and exporters to trade across borders.† Discussion on the present Global Credit Crisis Closely related to the issue of international trade finance is the availability and access to flexible credit. This is because as mentioned already, trade finance goes beyond paying money in hand to a company to including the involvement of institutions such as banks and insurances. This means that issues on credit plays an important role on the success of world trade finance. However, it is common knowledge that the world has in times past suffered and even to day suffers from credit crisis that is not limited to any one country but the world as a whole. Broadly speaking, when a particular nation suffers a breakdown with its credit system, we say credit crisis has hit that country but when the situation expands to include almost all nations of the world – especially the giants like America, China and Germany, we say that there is a global credit crisis. Greewood (2011) explains that global credit cri

Ethics in the 21st Century Research Paper Example | Topics and Well Written Essays - 1000 words

Ethics in the 21st Century - Research Paper Example ior shows ethics through the way a person performs in public, according to the Institute of Global Ethics in the article ‘Ethics and 21st century University’, it is stated that, ethical behavior requiresa person to be: Such are the basic ethics that each society teaches to every individual. Absence of such ethics and ethical behavior can result into problems. These ethics teaches an individual to behave in an appropriate way in the society. Ethics and its nature have been different in different time. Some of the basic social ethics have remained the same but with time as situations change the code of ethics also change. Ethics of 21st century is a result of such case. Ethics of 21st century has a lot of considerations. It is stated that in 21st century ethics is not an option but compulsion. Besides holding the characteristics of competence, experience and intelligence, people at every level need ethical values. Those values predict their future behavior and performance. Rushworth M. Kidder, (2001) states that the principle task of 21st century decade is the creation and nurturing of a value- based culture which means that the ethics of this century are morally strong and follow strict ethics, he was of the view that due to the large amount of time spends at work much of the nurturing takes place in the business environment. Today almost all the organizations are aware of the need for ethics. Organizations see ethics as a social responsibility which they follow as a social obligation. There is a need to follow ethics because it predicts their social and professional relations. In the article ‘Ethics for 21st century’ (UNESCO, 2001) this report is reported from the conference which was held in 2nd session discusses ethics and its role deeply. Ethics from different perspectives are discussed in the paper for example: These roles play a significant role for the analysis of ethics in different fields. It thus enhances the role of ethics in every field