How does Best Brains value its inventory of books and materials?

According to Best Brains' 2025 Franchise Disclosure Document, the company values its inventory of books and materials at the lower of cost or net realizable value, using the first-in, first-out (FIFO) method for cost determination. This accounting practice is detailed in the financial statements included in the FDD.

For a prospective Best Brains franchisee, understanding inventory valuation is crucial because it directly impacts the reported profitability and financial health of the franchise. The FIFO method assumes that the first units purchased are the first ones sold. This can be particularly relevant in an environment where costs are changing, as it affects the cost of goods sold and, consequently, the net income reported on the income statement. If the cost of books and materials increases over time, using FIFO can result in a higher reported net income during periods of inflation because the older, cheaper inventory is being expensed first.

Net realizable value represents the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. By valuing inventory at the lower of cost or net realizable value, Best Brains ensures that the inventory is not overstated on the balance sheet. This is a conservative accounting approach that recognizes potential losses as soon as they are identified, rather than waiting until the inventory is actually sold. This valuation method provides a more accurate and realistic view of the company's financial position.

Franchisees should be aware of these accounting policies as they review the financial statements provided in the FDD and manage their own franchise operations. Understanding how inventory is valued helps in interpreting the financial performance of Best Brains and in making informed business decisions.