CFC Franchise Financial Analysis & Investment Evaluation Flashcards
6 cards from real CFC practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 CFC Franchise Financial Analysis & Investment Evaluation flashcards as text
Which financial document in a Franchise Disclosure Document (FDD) provides a prospective franchisee with the franchisor's audited financial statements?
Answer: Item 21
Item 21 of the FDD contains the franchisor's audited financial statements for the most recent three fiscal years.
When evaluating a franchise investment, what does the term 'Item 19' in the FDD refer to?
Answer: Financial performance representations
Item 19 of the FDD is the Financial Performance Representation (FPR), where franchisors may voluntarily disclose actual or projected financial performance data.
What is the primary purpose of calculating the breakeven point for a franchise investment?
Answer: To identify when total revenue equals total costs
The breakeven point identifies the sales level at which total revenues equal total costs, meaning the business neither profits nor loses money.
A franchise candidate asks about the 'total investment range' for a concept. Which Item in the FDD covers this?
Answer: Item 7
Item 7 of the FDD provides the estimated initial investment, including all costs a franchisee should expect to incur before opening.
Which ratio is most commonly used to assess a franchise system's overall profitability relative to its revenue?
Answer: Net profit margin
Net profit margin (net income divided by revenue) measures how much of each revenue dollar is retained as profit after all expenses.
What does 'ramp-up period' mean in the context of franchise financial planning?
Answer: The initial period of lower-than-expected revenue as the business builds its customer base
The ramp-up period is the early phase of operations when revenues are typically below steady-state levels as the business gains traction.