How often does Carls test goodwill for impairment?
Carls Franchise · 2024 FDDAnswer from 2024 FDD Document
We test goodwill for impairment on an annual basis, or more frequently if events and/or circumstances indicate that goodwill might be impaired. The impairment test is performed at the reporting unit level, and an impairment loss is recognized to the extent that the carrying amount of the reporting unit exceeds its fair value. We consider our reporting units to be company-operated restaurants, domestic franchised restaurants and international franchised restaurants as the components (e.g., restaurants) within each reporting unit have similar economic characteristics, including products and services, production processes, types or classes of customers and distribution methods.
Source: Item 21 — FINANCIAL STATEMENTS (FDD pages 79–80)
What This Means (2024 FDD)
According to Carls's 2024 Franchise Disclosure Document, goodwill is tested for impairment on an annual basis. However, Carls may test more frequently if events or circumstances suggest that the goodwill might be impaired. The impairment test is conducted at the reporting unit level. An impairment loss is recognized if the carrying amount of goodwill exceeds its implied fair value.
The reporting units that Carls considers are company-operated restaurants, domestic franchised restaurants, and international franchised restaurants. These components have similar economic characteristics, including products and services, production processes, types or classes of customers, and distribution methods.
For a prospective franchisee, this means that Carls regularly assesses the value of its goodwill, which can impact the company's financial statements. If impairment is detected, it could signal potential financial challenges within the company or its various reporting units. It is important to note that goodwill is an intangible asset, and its valuation can be subjective and based on various assumptions.