PREPARED BY:: FLUTURA BIILCARII PREPARED BY FLUTURA B LCAR IINSTRUCTOR:: NSTRUCTOR LEDIIA CIIRKO LED A C RKO Date 25th May, 2011
BOSTON CHICKEN INC
1. How is the company reporting on its performance and risks? What are the keys assumptions behind these policies? Do you think that its accounting policies reflect the risks? 2. What adjustments, if any, would you make to the firm's accounting policies? 3. What questions would you ask management about the company's performance? 4. How is Boston Chicken performing? 5. What assumptions is the market making about the company's future performance and risks? Do you agree with those assessments?
Solutions …show more content…
Current ratio is increased which means that the company is doing well in covering the short term liabilities. Also the Operating cash flow ratio is increased and this is good for the company because is a growing company and need cash to be expanded. The Profitability ratios are all increasing from 1993 to 1994, which means that the company is managing very good their assets in order to have more profit. The average collection period is increased from 1993 to 1994 and that is not very good because company will take more short-term borrowings but at the same time the turnover cash ratio is higher, which means that the company by itself can generate more cash, so nothing to be worried about the liquidity.
Question 5 There are lot opinions regarding the future prospects of the company (optimist and pessimist). o The quality of the earnings is very low since all of B.C income comes from fees, royalties and interest payments from franchisees, most of whom were financed by the franchiser. o Bagel industry is one of the good opportunities for Boston Chicken o EPS in 1995 would increase to $0.63 and in 1996 in $0.9 and would continue to grow by 45% per year from 1997 to 2001. o Short interest positions in the stock were at an all-time high of 10 million shares, more than 20% of the shares outstanding and double the short interest position at the beginning of 1995.