Comparing Better Brew and Perfect Blend Coffee Comapnies

Comparing Better Brew and Perfect Blend Coffee Comapnies

After years of dreaming about owning you own business, you decided that owning a coffee shop would be perfect. Rather than start from scratch, however, you and your partners decide to look at two existing establishments, Better Brew and Perfect Blend. The two are for sale at the same price, and they are located in equally attractive areas. You manage to get enough financial data to compare the year-end condition of the two companies.

What factors should you consider before deciding which company to buy? What additional data might be helpful to you? (Not that net income is implied). We have the Balance sheets for the year end which is the statement of financial position and the snapshot of the company's financial position on a particular date. The financial statements give us an indication of how the business is performing and where it stands at a particular time. I would want some history of the two businesses such as the age of the business, profitability, liquidity, activity, and leverage. This information is useful in analyzing how well the company is performing in relation to previous performance, the economy as a whole, and the company's competition (Bovée, Thill, & Mescon, 2005, p. 421). Other factors to consider are the appearance of the business, length of time of ownership, seasonal peaks, reasons for personal withdrawals, owner's salaries, supplier information, existing inventory systems, type and age of equipment, leases on equipment and buildings, available space for the business, possibilities for expansion, number of employees, benefits offered to employees, and accounting principles used. Additional data that would be helpful include other financial documents including the an income statement to get a general sense of the company's size and performance as well as the statement of cash flows to see how the company's cash was received and spent for the operations, investments, and financing (Bovée, et al., 2005). Another factor to consider is information on the industry average or regional competitors.

What questions should you ask about the methods used to record revenues and expenses? It is important to know if the accounting for the businesses is done on a cash-basis or accrual-basis. In the cash-basis method, the revenue is recognized when cash is received and the expense is recognized when the cash is paid out.