In the context of Marble Slab Creamery's financial statements, what are Level 2 inputs defined as?
Marble_Slab_Creamery Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company determines the fair market values of its financial assets and liabilities, as well as non-financial assets and liabilities that are recognized or disclosed at fair value on a recurring basis, based on the fair value hierarchy established in US GAAP. As necessary, the Company measures its financial assets and liabilities using inputs from the following three levels of the fair value hierarchy:
- Level 1 inputs are quoted prices in active markets for identical assets or liabilities.
- Level 2 inputs are observable for the asset or liability, either directly or indirectly, including quoted prices in active markets for similar assets or liabilities.
- Level 3 inputs are unobservable and reflect the Company's own assumptions.
Source: Item 21 — FINANCIAL STATEMENTS (FDD pages 100–101)
What This Means (2025 FDD)
According to Marble Slab Creamery's 2025 Franchise Disclosure Document, Level 2 inputs are used to determine the fair market values of the company's financial assets and liabilities. Specifically, Level 2 inputs are defined as those that are "observable for the asset or liability, either directly or indirectly, including quoted prices in active markets for similar assets or liabilities."
In simpler terms, Level 2 inputs are values that can be derived from the market, either directly from similar assets or indirectly through observable data. This is in contrast to Level 1 inputs, which are quoted prices for identical assets in active markets, and Level 3 inputs, which are based on the company's own assumptions and are unobservable.
For a prospective Marble Slab Creamery franchisee, understanding these definitions is important for interpreting the company's financial statements. While the document states that Marble Slab Creamery does not have a material amount of financial assets or liabilities that are required to be measured at fair value on a recurring basis, it's still helpful to know how the company values its assets and liabilities, as this can impact the overall financial health and stability of the franchise system.