Boston Chicken, Inc.
Boston Chicken wanted to be a home meal replacement. Its main strategy includes (1) focus on franchising to larger regional developers who will open new stores in the region; (2) focus on home cook taste food and keen on introducing new varieties of food choices; (3) rapid expand to open new stores; (4) keen on operation and process improvement.
Such a strategy made the business expand fast in term of the business scale and number of Boston Chicken stores, either company owned stores or franchised stores.
The main risk was also clear. As Boston Chicken financed most of its areas developers and competition of the fast-food market was quite …show more content…
Evaluate the company¡¯s financial and operating performance given your concerns about its accounting policies. Assess Boston Chicken¡¯s current condition and future potential given its business strategy, accounting policies, and recent performance.
Boston Chicken expanded fast in the 1990¡¯s. The number of franchising stores is soaring and the average sales from each store were rising. From its annual report, Boston Chicken showed most of its revenue from royalties & franchise-related fees, so the company must keep the momentum to open more stores. At the same time, the company needed to open more company owned stores to increase the percentage of revenue generated by company owned store sales.
However, some accounting policies were very aggressive and inclined to overstate revenue and understate expenses. Besides, some important information was not disclosed in the financial statements, e.g. the operating results of the franchising stores. Our concern about Boston Chicken¡¯s financial performance is its reliability and sustainability. As we know some revenue should not have been recognized and some expenses should have recorded, the net income would not be as good as it showed. As playing in franchising business and it had lots of loans to the franchising stores, the operating results of those stores would be critical to the valuation of Boston Chicken¡¯s