Winery Inventory Worksheet
WINERY XYZ
SCHEDULE III
WINE INVENTORY – NET REALIZABLE VALUE
As of December 31, 2011
Inventory
Gallons Bottles
BOTTLED - FINISHED GOODS
2008 Vintage
2009 Vintage
2010 Vintage
Total Bottled
3,630
79,179
5,184
87,993
Inventory
Cases
Gallons
354
147
16,593
6,910
20,723
8,630
BULK
No Vintage
2010 Vintage
2011 Vintage
Total Bulk
Average
Revenue
per Bottle
Estimated
Value
138.46
75.28
54.00
$
Average
Revenue
per Case
Estimated
Value
66,150
3,546,000
4,770,000
8,382,150
$ 450.00
513.00
553.00
Total Wine Inventory
502,623
5,960,953
279,936
6,743,512
$ 15,125,662
ADDITIONAL COSTS required for normal sale
Bulk - Shrinkage
Bulk - Cooperage/Aging Cost
Bulk - Bottling
Selling
General Administration
Total Wine Inventory less costs
Profit and Risk Adjustment (to be est. by appraiser)
Net Realizable Value (rounded)
© 2012 Business Valuation Resources, LLC
% or
Per Case
(654,000)
(1,612,000)
(623,000)
(1,513,000)
(1,513,000)
(5,915,000)
Sch X
Sch X
Sch X
10%
10%
$
9,210,662
(3,025,000)
$
6,186,000
20%
Winery Inventory Worksheet
Notes to Schedule III – Wine Inventory – Net Realizable Value
Schedule III represents the fair market value of the wine inventory that is ready for sale and waiting
to be bottled utilizing the net realizable value method. We have used estimates that we believe are
reasonable based on the Company’s historical performance and knowledge of the industry in
general.
1. Finished Goods Cases: The number of cases of finished wine inventory is from the
internal inventory prepared by the Company as of December 31, 2011. This internally
prepared inventory is used as a basis for insuring the inventory and is detailed in quantity and
price per bottle to the varietal and year, size of bottle, and expected sales channel. We have
reduced the finished goods inventory for inventory that is not planned to be sold, i.e.
inventory that will be used in marketing, research, and charitable donations.
2. Bulk Inventory: The amount (in gallons) of bulk wines came from the internal inventory
prepared by the Company as of December 31, 2011. This internally prepared inventory is
used as a basis for insuring the inventory and is detailed in quantity and case equivalent price
to the varietal and year.
Bulk wine was converted from gallons to equivalent cases at the ratio of 2.4 gallons per
equivalent case. The value of the equivalent cases was estimated by using the average price
per case in the internally prepared inventory.
3. Cost to Finish Bulk Wine: We have estimated the cost to finish the bulk wine by
evaluating the costs to age and bottle the wine. We have also allowed for shrinkage due to
evaporation and spillage. Below, we show the schedule of costs to finish the bulk wine.
Cost to Finish Bulk Wine
Vintage
None
2010
2011
Cases
Average
Shrinkage
Total
Case
Adjusted Aging Total Aging
Factor Shrinkage Shrinkage
Cases
Factor
Costs
Sales Retail Value
147
6,910
8,630
$ 450.00 $
66,150
513.00
3,546,000
553.00
4,770,000
15,687
$ 8,382,150
0%
5%
10%
$
177,000
477,000
346
864
147 $ $
6,564
80.00
525,000
7,766 140.00
1,087,000
14,477
$ 654,000
Adjusted cases
Bottling Cost Per Case
$ 1,612,000
14,477
$
43.00
Total Bottling Costs $ 623,000
For the 2010 and 2011 vintages, aging the wine in barrels was estimated at $80 per case
equivalent per year, based on 2011 cellaring costs of approximately $1,179,000 allocated to
bulk wine inventory and 14,477 case equivalents inventory. We assumed 75 percent of the
2011 vintage would be cellared for an additional year as 25 percent of the 2011 bulk
© 2012 Business Valuation Resources, LLC
Winery Inventory Worksheet
inventory is sauvignon blancs and pinot noirs which are likely bottled in 2012. Shrinkage
was estimated at 5 percent for the 2010 vintage and 10 percent for the 2011 vintage based on
our industry experience. We have estimated bottling costs at $43 per case, based on
management’s estimate of bottling costs and the 2011 bottling expense.
4. Selling Costs: The selling and administrative costs (SG&A) are the estimated costs to sell,
deliver and account for case sales. These costs include the direct and indirect costs of the
sales representatives, administrative employees, and tasting room operations. In 2011,
marketing and selling costs were 9 percent of revenue. We have rounded up to 10 percent
of revenue, in part to reflect the new emphasis on wine club sales.
5. General and Administrative Costs: Like selling costs, we have estimated general and
administrative costs at 10 percent based on 2011 general and administrative costs at 12
percent of revenue. We expect that as the price per bottle increases, and revenues increase,
that there will be efficiencies in administrative costs.
6. Profit and Risk Adjustment: The adjustment accounts for the profit or return that a buyer
would require in return for purchasing the inventory. There is inherent risk in wine-making
and the industry pricing trends in general. The sales value of the wine inventory is
approximately three times the 2011 annual sales of the Company, so it will take time to
liquidate the inventory. The return reflects the time value of money as there is a three or
more year time horizon for liquidating the inventory in the marketplace.
To test the reasonableness of our profit and risk adjustment, we consider the return a
hypothetical investor would get from buying the wine inventory at December 31, 2011 for
the net realizable value of $6,186,000. We can estimate the investor’s expected return. The
total investment that the hypothetical buyer would make in the inventory and return on that
investment would be as follows:
Inventory - Net Realizable Value
Aging
Bottling
Selling
General and Administrative
$ 6,186,000
1,612,000
623,000
1,513,000
1,513,000
Investment in Inventory
$11,447,000
Profit and Risk Adjustment
Profit and Risk Adjustment and % of Investment in Inventory
$ 3,025,000
26%
The return on investment would equate to approximately 26 percent, which seems
reasonable given the risks and the potential time it could take to convert the finished goods
to revenue at the expected prices.
© 2012 Business Valuation Resources, LLC