Price and Nicos Zafiris are all members of the International Franchise Research Centre at the University of Westminster, England. At its best, franchising is an avenue into self-employment offered by franchisors (owners of a 'tried and tested' business format) to franchisees (typically aspiring small business men and women), in exchange for payment of a once-off front-end fee followed by an on-going royalty. Based on the principle of 'cloning' success, a principal tenet of the franchise fraternity is that franchise failure rates are low. From the viewpoint of small business researchers, franchising has been argued to be of particular importance, since most franchisors still are, or recently have been, small businesses themselves and most of their royalty-paying franchisees are also small businesses. Thus, in principle, franchising offers a route to growth for the would-be franchisor and small businesses opportunities with limited risk for would-be franchisees. Debates on franchise failure rates, compared with conventional business failure rates, have historically been dogged by problems of definition and measurement. However, recent developments have improved the situation here and what emerges is a striking similarity of failure rates between the two forms of (usually) small business - franchised and non-franchised.
The current search for operational criteria and tests of firm performance is largely focused on the Economic Value Added (EVA) framework. While reasserting the essential soundness of this approach the paper seeks to improve its application by proposing a version of EVA which anchors the opportunity cost of equity capital on market rather than book values. The case for this is argued on general grounds and the resulting model is convenient for examining the possible effects of the gearing factor. The practicability of the model is illustrated by applying the proposed 'EVA' formula to a mixed set of accounting and stock market data from a sample of UK companies.
The paper uses recent data of financial performance drawn from a sample of manufacturing and service firms from the London Borough of Islington to assess the current position of such enterprises in a typical inner city area . Performance is found to be as good as, and in some cases better than, the national average, suggesting a more optimistic picture than might have been expected in view of recent findings of `inner city decline' .
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