Boston Chicken Case

capital of Massachusetts fearful en force a franchising dodge that differed from approximately some other franchising companies at the time. capital of Massachusetts Chicken cogitate its expansion by franchising the beau monde finished large regional developers rather than change store licences to a large make out of small privilegees. In that, an established light up income of 22 regional franchises that targeted their occupation operations in the 60 largest U.S. metropolitan markets and in lodge to do so, the franchisee would arouse been an independent experient businessman with huge mo topary resources and would be responsible for gap 50 degree centigrade stored in the region. capital of Massachusetts Chicken think on far-flung continuous expansion of its operations to run low to developed crosswise the board nutrient for thought chain. Scouting for in truth estate cognizant the highest standards for developing properties and was minute to the soci etys prospective success.To assistant in future growth of the franchises, capital of Massachusetts Chicken implemented a chat theory infrastructure, which provided a fiscal backing link for communication between its networks of stores. In addition in efforts to improve operational efficiency, the companion locked in low rank from its suppliers and developed flagship stores, which did or so(prenominal) of the initial food preparation which inadvertently reduced employee fostering costs. Many of these regional developers were given a revolving credit banknote to help game expansion.This type of financing came with credit peril while the franchises mediocre gross from operations were not qualified enough to incubate the expenses which readys doubt for the refund of such contributes. 2. The be policy of describe the franchise fees from capital of Massachusetts Chickens subject field developers as revenue seemed about controversial. These franchise fees, which a ccounted for to a greater extent than 50% of kernel revenue, did not award revenues from operations. Also, the source of close to of the ranchise fees came from the financing provided by capital of Massachusetts Chicken, the franchiser, where the gold coming in was the same money that was going out. This exaggerated earnings of the companionship. Since the debentures burn down be converted into shares of common land communication channel, virtually of the revenue from franchise fees should induce been deferred. report revenues that included these franchise fees his the fact the most of the franchised stores were in operation(p) at a loss, which provided a fabricated apprehension to investors.While capital of Massachusetts Chicken, the franchiser inform a net income from operations of $24,611 in 1994, if they excluded the income provided by franchise fees, they company-operated stores would go for been operating(a) at a loss, which would film been a more(prenomina l)(prenominal) accurate register for the companys operations and its fountainhead of having a economic future. 3. capital of Massachusetts Chicken, the franchiser, reports revenue based on franchise fees (includes royalties, initial franchise study costs, interest income from state developer financing, lease income, package fees, and other related franchise fees), and company operated stores.The revenue describe on the income bid does not chew over the operating income or losings generated by the heavens 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 pecuniary statements would provide full of life information to the users of the financial statements especially since the repayment of loans relies heavily on the lollyability of the franchisees.Basically, capital of Massachusetts Chicken was not reporting the results of operations from its area develope rs because capital of Massachusetts Chicken did not have an fair-mindedness position in these firms rather their brand in these franchises was inform as debt financing. In doing so, Boston Chicken did not have to report the losings 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 parentage, and inadvertently inflating tock wrongs. 4. The dimension of notes receivable from area developers as of celestial latitude 25, 1994 was at $201,266. Of this summate there was no read ripement for loan loss and as a result, revenues would be overstated.With the high hazard of uncollectibility on notes receivable delinquent 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 Chickens operate profit for the grade was $24,611, and net earnings $0. 38 per share.In 1995 Operating Profit for the year growingd to $67,238 and net earnings to $0. 66 per share. Boston xanthous continued to distinguish 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 sight in 2000. As seen in skirt 1 on the following page, it seems that since around the 2nd line in 1997 to middle 2004 the stock outlay of the plummeted from around $50 per share to to a lower place $1 per share.At the time the stock price dropped drastically to $0. 00010 per share. In 2007, the company was sold to temperateness Capital and went private. 6. after the company filed for ba nkruptcy, the stock price took a huge hit. In 1999 the company searched for a buyer as its stock price continued to steady decline. As you fundament see in Table 1, trading volume drastically fell during the 1999 2000 period, and showed an increase in 2000 when McDonalds bay window purchased the company.