Decoding franchise risk, maximizing potential returns.
The Johnsons are evaluating the purchase of three additional franchise units within a new territory, costing $1.2 million. While the franchisor's FDD looks promising, they're unsure how to accurately gauge the underlying operational risk of this expansion independent of the debt they'll likely take on. They want a clear, objective measure to compare this investment against other opportunities and ensure it aligns with their risk tolerance, considering college expenses and retirement savings.
Using the Unlevered Beta Calculator, Golden Door Asset's advisor analyzed comparable publicly traded franchise companies, stripping out the impact of debt to isolate the business risk inherent in the franchise model. This yielded an unlevered beta of 0.85, suggesting below-market average operational risk. Further analysis with the Debt-to-Asset Ratio Calculator helped quantify the impact of potential debt financing on their overall portfolio risk, providing a clear picture of the leveraged risk profile.
The Unlevered Beta was calculated by averaging the unlevered betas of three comparable publicly traded franchise operations, using their reported levered betas and debt-to-equity ratios. The Debt-to-Asset Ratio was then used to model the impact of various financing scenarios on the Johnsons' overall portfolio.
$75,000 in potential missed opportunity costs avoided by making an informed, risk-adjusted decision. Allows for confident negotiations with lenders, saving an estimated 0.25% on interest rates.
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