Category Archives: Inventory

Blog Archive for Inventory Category Posts

The Ins and Outs of Inventory Appraisals

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.

Nursery Inventory Appraisals

M&E Appraisal Associates, Inc. (“M&EAA”) is expert in the provision of nursery inventory appraisals.

M&EAA recently appraised the inventory of a large regional nursery. The subject inventory appraised included live plants (perennials, decorative shrubs & trees), landscaping supplies, pots & trays, mulch, stone, and other assorted items.

The appraisal was provided for asset based loan consideration purposes, under the Orderly Liquidation Value scenario. M&EAA defines Orderly Liquidation Value as a professional opinion of the gross sales that the inventory would typically realize in a negotiated sale, properly advertised and professionally managed, by a seller obligated to sell over a defined time period.

Appraisal conclusions: the subject inventory is highly affected by seasonal factors and is inherently susceptible to a significant degree of shrinkage. The values concluded were lower than would be expected if the subject inventory was contemplated for sale during the company’s peak sales season. The inventory was concluded on a gross basis. A typical orderly sale would include selling expenses, occupancy costs, retained labor, etc., all of which would be absorbed by the seller and result in a lower net Orderly Liquidation Value conclusion.

Lighting Components Inventory Appraisals

Lighting Components Inventory AppraisalsM&E Appraisal Associates, Inc. (“M&EAA”) provides certified lighting components inventory appraisals. M&EAA recently appraised the inventory of a large volume lighting components manufacturer and distributor.

The subject inventory appraised included raw materials (coil steel, cord, wire, etc.), work in progress (WIP), and purchased parts, components, and finished goods.

Appraisal conclusions: the finished goods and purchased parts/components were typically well matched to customer demand, and yielded high orderly liquidation recovery value. Concluded values for these more desirable/higher margin inventory categories typically ranged from 75% to 90% of normal selling price. Slow moving, and/or obsolete inventory items typically had low orderly values ranging from 10% to 20% of cost. The blended average aggregate Orderly Liquidation Value was approximately 50% of the subject company’s inventory book cost.

Steel Joist Inventory Appraisals

Steel Roofing Joist Inventory AppraisalsM&E Appraisal Associates, Inc. (M&EAA) is an experienced provider of steel joist inventory appraisals. M&EAA recently appraised the inventory of a steel joist and decking manufacturer.

The finished goods inventory included small to wide span steel roofing joists and steel decking, for use in commercial and industrial construction projects. Raw materials included hot and cold rolled steel coils, structural steel angles, structural steel bars, structural steel channels, steel mesh, and other items related primarily to the steel joist manufacturing process.

Appraisal conclusions: the inventory was appraised under the Orderly Liquidation Value scenario for asset based lending considerations. The value concluded for the Finished Goods category was very favorable, as all joists and decking are manufactured specifically to customer order. Values concluded for Raw Materials was also favorable, as all/most of the coil steel and structural steel are of standard grades, materials, sizes, lengths, etc. which are desirable and readily usable by other industrial manufacturers, after appropriate discounting. Value for Work In Process was concluded as scrap value.