How are Aerus inventories, consisting of finished goods and parts, valued?

Based on the 2025 Aerus Franchise Disclosure Document, the company primarily uses a consignment basis for sales to its franchisees. This means Aerus retains ownership of the goods until the franchisee sells them to the end customer. Revenue from these sales is recognized only when the franchisee actually sells the inventory. However, revenue from the sale of parts is recognized immediately upon shipment to the franchisees.

This accounting practice has several implications for franchisees. Since Aerus recognizes revenue only when the franchisee sells the products (excluding parts), franchisees may benefit from lower initial costs, as they don't purchase the inventory outright. Instead, they pay Aerus only after they've made a sale. This can significantly reduce the working capital needed to start and operate the franchise.

However, franchisees should be aware that while they don't own the inventory upfront, they are still responsible for its safekeeping and proper handling. Additionally, the FDD does not specify how the inventory is valued (e.g., FIFO, weighted average cost). Prospective franchisees should seek clarification from Aerus regarding the specific inventory valuation method used, as this can impact financial reporting and profitability calculations.