How does Checkersrallys value its inventory of food and paper packaging?

According to Checkersrallys's 2025 Franchise Disclosure Document, the company values its inventory, which consists of food and paper packaging, at the lower of cost or net realizable value. The cost is determined using the first-in, first-out (FIFO) method. This means that the first items placed in inventory are assumed to be the first ones sold or used.

For a prospective Checkersrallys franchisee, this valuation method is important for understanding how the cost of goods sold will be calculated, which directly impacts the reported profitability of the restaurant. The FIFO method generally reflects the actual flow of inventory in a restaurant setting, as older items are typically used before newer ones to maintain freshness and quality. However, it's important to note that if the cost of food and paper packaging increases over time, using the FIFO method could result in a higher cost of goods sold and lower reported profits compared to other inventory valuation methods.

Net realizable value represents the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. If the net realizable value of the inventory falls below its cost, Checkersrallys will write down the inventory to its net realizable value, resulting in a loss in the current period. This could occur if food items become obsolete or if market prices decline.

Understanding Checkersrallys's inventory valuation method is crucial for franchisees to accurately interpret financial statements and make informed business decisions. Franchisees should monitor inventory levels and market prices to ensure that inventory is properly valued and that potential losses are minimized.