business valuation

March 5, 2019

Valuing Inventory in Business Transactions

How is inventory figured in the value of a business? For industries which have little or no inventory like service, professional, IT, etc., inventory is basically a non-issue in the valuation process. But for other industries such as retail, distribution and manufacturing, disagreements over the value of inventory can kill deals. For retail and distribution businesses, the role inventory plays in the valuation process would seem to be pretty straightforward: the overall value of the business is the sum of a multiple of the earnings of the company and the cost basis of the inventory. Voila – you now have the approximate value of the retail or distribution business – except bad things can happen when a prospective buyer looks […]