How are supplies valued for Petro Stopping Center, according to the FDD?

According to Petro Stopping Center's 2025 Franchise Disclosure Document, supplies are valued at the lower of cost on a weighted-average basis and net realizable value. This valuation method is important for franchisees as it directly impacts the reported value of their inventory and, consequently, their financial statements. The 'cost' includes all expenses incurred to acquire and prepare the supplies for sale, while 'net realizable value' refers to the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.

The weighted-average cost method calculates the average cost of all similar items available for sale during a period and uses this average cost to determine the value of goods sold and remaining in inventory. This approach smooths out price fluctuations, providing a more stable inventory valuation compared to other methods like FIFO (First-In, First-Out). However, it may not accurately reflect the actual flow of goods or the most current market prices.

By valuing supplies at the lower of cost or net realizable value, Petro Stopping Center ensures that inventory is not overstated on the balance sheet. If the net realizable value falls below the cost (due to obsolescence, damage, or declining market prices), the inventory is written down to its net realizable value, resulting in a loss recognized in the current period. This conservative approach provides a more realistic view of the franchisee's financial position. Franchisees should monitor their inventory closely to identify any potential write-downs and understand the impact on their profitability.