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The Concept of Highest and Best Use in Valuation of Inventories

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  • Traian Cristian DEMETRESCU

Abstract

In the case of inventories, the market value is influenced by the quantity of products contained in those inventories. The size of an inventory indicates the place where the potential buyers of this inventory can be found within the distribution chain. Different levels of the distribution chain have different levels of cost for the same good and therefore the market value of an inventory depends both on its size and on the level of the distribution chain where this inventory can be traded. In the inventory sale activity, every dealer aims at having its incomes exceed the sale-related expenses, that is, at maximizing its net income. But this target can be limited by the legal stipulations or the logistics constraints that can impact the sale. These elements remind us of the concept of highest and best use frequently used in real estate valuation that can be applied also in valuation of inventories. They have specific features which make the concept of highest and best use sometimes inadequate in its traditional form, the valuer being the one who must identify the possible derogations from it.

Suggested Citation

  • Traian Cristian DEMETRESCU, 2012. "The Concept of Highest and Best Use in Valuation of Inventories," The Valuation Journal, The National Association of Authorized Romanian Valuers, vol. 7(1), pages 110-121.
    • Handle: RePEc:vaj:journl:v:7:y:2012:i:1:p:110-121
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    More about this item

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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