What inventory valuation method does Bhc use?

According to Bhc's 2025 Franchise Disclosure Document, the company values its inventory at the lower of cost or market value, utilizing the first-in, first-out (FIFO) method. The FDD specifies that substantially all of Bhc's inventories are raw materials.

The FIFO method assumes that the first units purchased are the first ones sold. This means that the ending inventory is valued at the most recent purchase prices. For a Bhc franchisee, this implies that the cost of goods sold will reflect older, potentially lower costs, while the remaining inventory will reflect more current costs. This can impact the reported profitability and tax liabilities of the franchise.

Using the lower of cost or market principle provides a conservative approach to inventory valuation. It ensures that inventory is not overstated on the balance sheet. If the market value of the raw materials declines below their original cost, Bhc will write down the inventory to its market value, recognizing a loss in the current period. This practice aligns with generally accepted accounting principles and provides a more accurate representation of the company's financial position.

Prospective Bhc franchisees should understand the implications of the FIFO method and the lower of cost or market principle when managing their inventory. They should also maintain accurate records of their purchases and sales to ensure proper inventory valuation and financial reporting.