APPRAISALS - INVENTORY EVALUATIONS
We are frequently asked to appraise inventories for advance rate purposes. First, lets get our terms right.
There is a difference in an appraisal and an evaluation.
An appraisal is an opinion of what an item or items are worth to a buyer at a particular point in time. Given that inventories are in constant flux, with the quantities changing by the hour or minute (you hope), we do not believe it is possible to accurately “appraise” most inventories.
We chose to perform evaluations. It may seem like splitting hairs but there is a difference. Our inventory evaluations focus on the types of inventory determined by turn rate as opposed to the inventory as a whole.
Frequently Asked Questions
- Through an interview with the owner or executive management, an inspection of the facility, review of latest inventory counts, etc., we categorize the inventories as to how fast they sell (or turn).
- We then assign a certain percentage of the inventory to whether it is Fast, Average or Slow moving and whether any percentage is Dead.
- We then take the book purchase cost of the various inventory items and assign a weighted value based on our liquidation experience.
- Obviously, fast moving inventory is in more demand than slow moving inventory and in a liquidation scenario will generate a greater recovery.
- Our reports show what percentage of the inventory we believe should be classified in the various categories and what the weighted values are.
- This then gives the lender a better understanding of what the inventory is and a better comfort level as to the collateral.