How does Crab N Spice define Level 3 inputs for an asset or liability?

According to Crab N Spice's 2024 Franchise Disclosure Document, Level 3 inputs are defined as unobservable inputs for an asset or liability. Financial instruments are classified as Level 3 when their fair values are determined using pricing models, discounted cash flows, or similar techniques, and at least one significant model assumption or input is unobservable. This definition is part of the broader discussion on fair value measurements within the financial statements.

In simpler terms, Level 3 assets or liabilities are those whose value is hard to pin down using real-world market data. Instead, Crab N Spice relies on its own assumptions and models to estimate what these assets or liabilities are worth. This could include things like projections of future cash flows or other internal estimates.

For a prospective franchisee, understanding this definition is important because it sheds light on how Crab N Spice values certain items on its balance sheet. Since these valuations involve subjective judgment, there's a degree of uncertainty involved. While the FDD does not specify which particular assets or liabilities are classified as Level 3, it's something a franchisee might want to discuss with Crab N Spice to understand the potential impact on the company's financial health. Reviewing the notes to the financial statements for further details would also be prudent.