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How is the value of existing inventory determined?
I'm currently contemplating the purchase of a manufacturing company that has been in operation for many years. Part of the agreement would be that the current inventory levels would be maintained and included in the sale. How does one go about determining the value of this inventory?
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Inventory is generally valued at cost with a discount for the aging of stock. What discount ?
It really depends on the industry and the type of stock. For example a clothing store that has last season's stock will generally have to write that down massively, but a hardware store with electrical fittings will be able to charge full cost in most cases.
Check the age of all inventory and work out what value it has based on the older it is the less it is worth. Now, if you find they have several years of future supply, then much of that can be written down.
All the Best,
Brad Sugars
CEO ActionCOACH
Brad Sugars is the founder of ActionCOACH, a business coaching franchise. As a world-renowned entrepreneur, author and business coach, he has helped more than a million clients around the world find business and personal success. Sugars has owned and operated more than two dozen companies including his main company, ActionCOACH, which has nearly 1,000 offices in 22 countries.
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