18 – earnings trends

When evaluating a franchise for potential investment one should examine the trend of earnings per share, the number of franchise sales, and stock price of the parent company in order to get a feel for the direction the company may be heading. This way an investor is able to choose between companies that have a steady, growing financial profile and those companies whose prospects may be dimming.

When evaluating a franchise opportunity, there are a few key metrics that you should browse which can reveal more about a company than just the glossy brochures and franchise agreement. A quick review of the charts of a company’s sales, earnings, and stock price can give you an indication of the trends in each category.

Earnings Per Share
Earnings per share (EPS) is a company’s profit divided by the number of outstanding shares of common stock and is a good indicator of a company’s profitability. Analyzing the company’s earnings per share trend over a period of years could indicate if the products and services the franchise offers continue to be in demand.

Franchise Sales
The trend in a franchise’s sales are a good indicator of the demand for a franchise and could indicate if investors have generally accepted the franchise’s overall concept.

Stock Price Chart
If the stock of the company you are considering is publicly traded, the monthly price chart can reflect what insiders think of the franchise’s prospects.

You don’t need to be a financial analyst to preview the charts of these three metrics. Remember, you need to hire a franchise attorney to provide you with detailed financial analysis of the above three charts as well as a thorough analysis of the company’s franchise agreement before you invest.