It is stated in the case study that Paul tried to determine the realistic figures which would apply to his launch of the franchise business and its operations in the region, based on the figures provided and quoted by the other franchise business of the same franchisor. This was very much of a realistic approach than simple budgeting or forecasting, however marketing conditions and the external environment for the business can cause changes in the operating environment for the business (Remus, O’Connor & Griggs, 1998), making the figures quotes by other franchisors obsolete. In this regard it is possible for some figures to be understated and overstated resulting in a vague depiction of the performance of the business in the coming years.
Based on the figures that were provided by Paul in the case study for the sales, gross profit and the projected expenses that would be incurred by the franchise business, the gross profit margin and the net profit margin for the three years of operations has been determined. This analysis depicts that the profit that would be available to the partners after the payment of expenses and before the payment of tax on individual share is $187,800 for 2003, $201,100 for 2004 and $201,100 for 2005. The GP margin is at 0.65 for 2003, 2004 and 2005. The NP margin however is at 0.218, 0.239 and 0.248 for 2003, 2004, and 2005 respectively. Based on these figures, the investment by Paul in the franchise for financial rewards is justified.
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