FRANCHISING

Finance

Which one of the following is not necessarily a post-combination characteristic of

a legal acquisition?
A. The combining firms remain separate legal entities.

B. A parent-subsidiary relationship exists.

C. The acquiring firm owns 100% of the voting stock of the acquired firm.

D. The combining firms are under common economic control.

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Correct!

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The acquiring firm in a legal acquisition does not have to own 100% of the voting stock of the
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acquired firm. In a legal acquisition, the acquiring firm need only acquire greater than 50%
(50% + 1 share) of the acquired firm to obtaining a controlling interest. Both firms continue to
exist and operate as separate legal entities, the acquiring firm as the parent and the acquired
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firm as a subsidiary.
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Under GAAP, which of the following can be issued as the primary form of public
financial statement disclosure for a parent and its subsidiaries?
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Parent only Separate Parent and Subsidiary Consolidated

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Statement Statements Statements

Yes Yes Yes

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Yes No No
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No Yes Yes

No No Yes

Correct!

Under GAAP, only consolidated financial statements may be issued as the primary form of
public disclosure for a parent and its subsidiaries. Parent only statements and separate parent

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 and subsidiary statements may not be issued in lieu of consolidated financial statements.

Penn, Inc., a manufacturing company, owns 75% of the common stock of Sell,
Inc., an investment company. Sell owns 60% of the common stock of Vane, Inc.,
an insurance company.

In Penn's consolidated financial statements, should consolidation accounting or

equity method accounting be used for Sell and Vane?

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A. Consolidation used for Sell and equity method used for Vane.

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B. Consolidation used for both Sell and Vane.

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C. Equity method used for Sell and consolidation used for Vane.
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D. Equity method used for both Sell and Vane.
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Correct!
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If one looked just at Penn's interest in Vane's result of 45% (75% x 60%), one might say that the
equity method would be appropriate.
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However, because Sell owns 60% of Vane, it controls Vane and would need to consolidate Vane.
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Because Penn owns 75% of Sell, it controls Vane and would need to consolidate Sell, which
consolidated Vane. Thus, all three would be consolidated, making this response correct.
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Aceco has significant investments in three separate entities. These investments

are:
1. 40% ownership of the voting stock of Kapco.
2. 60% ownership of the voting stock of Placo.
3. 100% ownership of the voting stock of Simco

Introduction
The 7 eleven brand can be found at every nook and cranny in the philippines. It is a brand that is
known and loved around the world. It is a convenience store system in the philippines that

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 started its operations in the year 1927 as tote’m stores until it was renamed in the year 1946 to
what we now know as 7 eleven. With over 68,236 branches around the country, there is bound to
he a 7/11 store anywhere you go in the philippines

SWOT ANALYSIS

STRENGTH
As one of the leading organizations in its industry, 7-Eleven has numerous strengths that
enable it to thrive in the market place. These strengths not only help it to protect the
market share in existing markets but also help in penetrating new markets.

 Successful track record of developing new products – product innovation.

 Highly skilled workforce through successful training and learning programs. 7-
Eleven is investing huge resources in training and development of its employees

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resulting in a workforce that is not only highly skilled but also motivated to achieve more.

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7-Eleven is generally perceived as the market leader by consumers

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in the convenience store sector. This brand equity translates into

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customer loyalty and reduced price sensitivity and, therefore,

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continued stability of revenue streams across its outlets.
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WEAKNESSES
Due to the need to locate the 7-Eleven outlets in very convenient
locations, they are likely to incur higher rental costs as a result. This
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higher operating cost structure will mean that they will need to
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adopt a price premium approach. There are some consumers who

are happy to pay a little bit more for convenience and speed of
purchase, however other budget-conscious consumers a more price
sensitive
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Similar to the high rental costs above, because the store operates
on a 24/7 basis in some locations, this type of retailing operation is
likely to have a higher ongoing operating cost structure. As a
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consequence of these higher costs, 7-Eleven will be required to have

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higher price offerings in order to protect their margins.

OPPORTUNITIES

In many of the 7-Eleven stores, there would be physical capacity to

increase the product range and offering. This provides the
opportunity of being able to offer a greater selection of both
physical products, as well as services, such as ATMs, cellphone
cards, and perhaps even car insurance. Certainly in some countries,

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 7-Eleven has expanded into offerings of wine, beer, fuel, ATMs,
coffee, donuts, pizza, sandwiches and so on.

7-Eleven has managed to form some strong relationships with key

manufacturers that have strong brands. An example here is
Gatorade, where certain flavors are only offered through 7-Eleven
stores. This has advantages to both of the strategic partners, and is
something that will broaden the range of benefits that 7-Eleven
delivers to its consumers.

7-Eleven could expand their geographic coverage through co-

branded outlets with other significant retail offerings. For example,
they could partner with a coffee chain or a sandwich chain and set
up a co-branded store – where both stores operate independently

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but out of the same location. This has the advantage of attracting

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more consumers, who are possibly less reliant on the convenience

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aspect, and are likely to buy from both businesses over time.

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Threat
Because 7-Eleven is a convenience store that handles cash and may
be open on a 24/7 basis, it is always likely to be a target for theft
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and armed hold-up. Obviously the chain has put in various security
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measures in different parts of the world, including video cameras,

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safes, and window barriers and so on.

Some consumers are adopting the system of ordering their

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groceries online and then having them delivered. Although this

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requires some pre-planning, it does also offer significant levels of

convenience to organized consumers, which does represent a threat
to 7-Eleven’s convenience-based competitive advantage.
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