What are working‑capital and inventory valuation methods in a purchase?

Valuing inventory and working capital accurately is critical during due diligence. Inventory should be valued consistently using a recognized costing method such as FIFO, LIFO, weighted average or specific identificationhttps://www.upcounsel.com/how-to-value-inventory-when-selling-a-business#:~:text=,count%20exceptions. Businesses should apply the lower of cost or market rule and include all allowable costs—direct materials, labour, overhead and inbound freight—while excluding non‑allowable costshttps://www.upcounsel.com/how-to-value-inventory-when-selling-a-business#:~:text=,count%20exceptions. Obsolete, damaged or slow‑moving inventory should be marked down to reflect market valuehttps://www.upcounsel.com/how-to-value-inventory-when-selling-a-business#:~:text=,count%20exceptions. Buyers should verify physical counts, ensure cut‑off procedures are correct and reconcile inventory systemshttps://www.upcounsel.com/how-to-value-inventory-when-selling-a-business#:~:text=,count%20exceptions. For working capital, define which accounts (accounts receivable, inventory, prepaid expenses, accounts payable and other current liabilities) are included and agree on the valuation methodhttps://mallon-lonnquist.com/blog/purchase-price-adjustments/#:~:text=includes%20confirming%20which%20accounts%20and,debt%20would%20be%20addressed%20separately. Accurate working capital and inventory values ensure that purchase price adjustments are fair and that the buyer understands the liquidity needed to operate the business post‑closing. Prime 100’s due diligence support helps buyers review inventory costing methods, verify counts and assess working capital needs. We work with sellers to prepare inventory lists and adjust for obsolete items, and we help both parties agree on fair working‑capital targets. Our customer‑focused team makes complex financial concepts clear and ensures that valuations are accurate.