How does Chesters value its inventories of goods held for resale?

According to Chesters's 2025 Franchise Disclosure Document, inventories, which include goods held for resale, are valued at the lower of their first-in, first-out (FIFO) cost or net realizable value. These inventories consist of equipment, ingredients, and supplies available for sale to customers.

For Chesters, this means that the company uses the FIFO method to determine the cost of its inventory. The FIFO method assumes that the first units purchased are the first ones sold. The inventory is then reported at either this cost or the net realizable value, whichever is lower. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.

Chesters also maintains an inventory reserve. At December 31, 2023, the company had an inventory reserve of $50,140. There was no inventory on hand at December 31, 2024. This reserve accounts for potential losses due to obsolescence, damage, or declines in market value, ensuring that the inventory is not overstated on the balance sheet. This accounting practice provides a more conservative valuation of Chesters's assets.

Prospective franchisees should understand that the valuation of inventory directly impacts the financial statements of Chesters. The inventory valuation method affects the cost of goods sold and, consequently, the reported profits. The inventory reserve further influences the net value of assets. Franchisees may want to inquire about the specific procedures Chesters uses to determine net realizable value and how the inventory reserve is calculated to better understand the potential impact on their own financial performance.