Regarding financial statement inputs for Sonesta Simply Suites, what constitutes a Level 1 input?
Sonesta_Simply_Suites Franchise · 2025 FDDAnswer from 2025 FDD Document
Applicable accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). We measure our assets and liabilities using inputs from the following three levels of the fair value hierarchy:
- Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access at the measurement date.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 79)
What This Means (2025 FDD)
According to Sonesta Simply Suites's 2025 Franchise Disclosure Document, fair value measurements are categorized into three levels. Level 1 inputs are defined as unadjusted quoted prices in active markets for identical assets or liabilities that Sonesta Simply Suites has the ability to access at the measurement date.
This means that when Sonesta Simply Suites assesses the fair value of its assets and liabilities, it prioritizes using readily available market prices for identical items. These prices must be observable in active markets, ensuring they reflect current and real-time valuations. The company must also have the ability to access these markets at the time of measurement to use these prices.
For a prospective franchisee, understanding these fair value measurements is crucial because they impact the financial statements presented in the FDD. The use of Level 1 inputs suggests a reliance on transparent and easily verifiable market data, which can provide a more reliable view of the company's financial position. This ultimately affects how Sonesta Simply Suites values certain assets and liabilities, which in turn can influence the perceived financial health of the company.