How does Benjamin Franklin Plumbing define 'fair value' when assessing financial assets and liabilities?
Benjamin_Franklin_Plumbing Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company applies fair value accounting for all financial assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements on a recurring basis. The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, the Company considers the principal or most advantageous market in which the Company would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions and credit risk.
The Company applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
Level 1 Quoted prices in active markets for identical assets or liabilities.
Level 2 Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 Inputs that are generally unobservable and typically reflect management's estimates of assumptions that market participants would use in pricing the asset or liability.
Source: Item 22 — CONTRACTS (FDD pages 87–88)
What This Means (2025 FDD)
According to Benjamin Franklin Plumbing's 2025 Franchise Disclosure Document, the company uses fair value accounting for financial and nonfinancial assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements on a recurring basis. Benjamin Franklin Plumbing defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining fair value measurements for assets and liabilities required to be recorded at fair value, the company considers the principal or most advantageous market in which the company would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions, and credit risk.
Benjamin Franklin Plumbing uses a fair value hierarchy that prioritizes the inputs used to measure fair value into three levels. Level 1 consists of quoted prices in active markets for identical assets or liabilities. Level 2 includes observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 includes inputs that are generally unobservable and typically reflect management's estimates of assumptions that market participants would use in pricing the asset or liability.
For a prospective Benjamin Franklin Plumbing franchisee, understanding these definitions and the hierarchy is important because it clarifies how the franchisor values its assets and liabilities. This can impact the franchisee indirectly through the overall financial health and reporting of the franchisor. The levels of the fair value hierarchy indicate the reliability and subjectivity involved in determining fair values, with Level 1 being the most reliable and Level 3 involving more management judgment. Franchisees should be aware of these valuation methods as they provide insight into the financial practices of Benjamin Franklin Plumbing.