M&E Appraisal Associates (“M&EAA”) inventory appraisals are used by clients for working capital and loan considerations, fair value in a company buy, sell and recapitalizations, tax liability assessments, litigation, and for insurance, estate planning, and other business purposes.

Our inventory appraisals rely on company provided inventory reports, supported by stock status, sales, purchasing and other reports. These reports, along with specific research accomplished during the analysis of the inventory, provide the framework for our inventory appraisal.

Before the Inventory Appraisal Begins

Before the inventory appraisal process begins, it is imperative to determine the purpose and intended use of the appraisal, the scope of the engagement and the appropriate value definition under which the inventory will be valued. Preliminary inventory reports are then gathered along with other requisite information, in an effort to categorize, classify, and analyze inventory groups for valuation purposes. This initial process is intended to provide sufficient detail in order to determine a reasonable valuation strategy and fee structure.

Initial Valuation Process

The company information and inventory reports to be utilized in the initial valuation process generally include the following.

• • Company name, type of inventory and inventory locations.
  • The purpose of the valuation and value concept contemplated.
  • Perpetual inventory listing and inventory summary reports, preferably by category, as well as support reports, if available, such as turnover, MRP, aging, gross margins, etc.
  • Summary of inventory and/or purchasing management methods in effect.
    Copies of any prior appraisals, if available.

Upon engagement and the completion of our preliminary analysis, we then typically schedule a field visit to meet with management, review initial analysis findings, obtain information concerning the company’s history, markets served, competitive information, supply sources, customer types, gross margins, inventory and purchasing systems and controls, and to observe general inventory condition and storage and handling methods.

Final Analysis and value conclusions

Final analysis and value conclusions typically include these type of considerations.

• • • The company’s competitive position and state of the current market, for products produced or distributed.
    • Types of raw materials such as commodity, custom, specials, standard and how used, dependent or independent.
    • Materials sourcing and supply chain features including general versus limited availability, order lead times, order quantity constraints, seasonal factors.
    • The present cost of materials to current market costs.
    • Types of finished goods produced or distributed such as generic or custom, and corresponding margin history.
    • Customer base, and the customer’s source dependency on the company.
    • Analysis of the utility of raw materials within production usage history or projections.
    • Projection of the sales potential for finished goods based on sales history and service levels.

Our comprehensive inventory appraisal report includes an inventory detail section by category and classification, which identifies and describes the anticipated values for each group which comprises the total concluded value.

Inventory appraisals also include a comprehensive narrative section which discusses the following:

• • • Definition and statement of value used, as of a specific date.
    • Valuation purpose, parameters and identification of inventory types valued.
    • Background of the company, location(s) of inventory, purpose, and use of the inventory and markets served, including comments on market and competitive position.
    • Explanation of valuation and research methods and key assumptions.
    • Observations and considerations which detail favorable and unfavorable value findings, potential markets for sale, sales methods and recovery expectations, suggestions for benchmarking and monitoring.
    • A statement of all limiting conditions.

If you are currently contemplating an inventory appraisal, please email us or call us at (844) VALUEME (825-8363) to further discuss the specifics of your assignment.