How does Benihana determine the cost of its inventories?
Benihana Franchise · 2024 FDDAnswer from 2024 FDD Document
nths or less when purchased. The Company's cash and cash equivalents consist of cash in banks and at the restaurants as of December 31, 2023 and 2022.
Accounts Receivable
The Company's receivables arise from credit cards, management agreements, trade customers and other reimbursable amounts due from hotel operators where the Company operates a food and beverage service. Accounts receivable from credit card processors and th
Source: Item 22 — CONTRACTS (FDD pages 73–74)
What This Means (2024 FDD)
According to Benihana's 2024 Franchise Disclosure Document, the company values its inventories, which include food, liquor, and other beverages, at the lower of their cost or net realizable value. The cost is determined using the first-in, first-out (FIFO) method. Net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs to sell.
For a prospective Benihana franchisee, this means that the value of the restaurant's inventory is assessed by assuming that the first items purchased are the first ones sold. This method can impact the reported profitability, especially during times of inflation or fluctuating costs. If prices are rising, FIFO can result in a higher reported income because the cost of goods sold will be based on older, cheaper prices.
As of December 31, 2023, Benihana's food inventories were valued at $4.0 million, and beverage inventories were valued at $2.2 million. In the prior year, December 31, 2022, food inventories were $3.7 million, and beverage inventories were $2.0 million. These figures provide a sense of the scale of inventory management within Benihana restaurants and highlight the importance of efficient inventory practices to maintain profitability.
It is important to note that Benihana also conducts regular audits of franchisee records, as detailed elsewhere in the FDD. These audits ensure compliance with inventory valuation methods and other financial reporting standards. Franchisees should maintain accurate and up-to-date records to avoid discrepancies and potential penalties.