Thanks for the tag ^redacted‌. Agree with the main point that inventory value should be verified, including physical inspection/count. However, in larger deals a common approach is including NWC and post-close purchase price adjustment provisions, backed by a special escrow, in the purchase agreement. Btw this matters equally in a stock purchase or asset purchase. Personally I've never seen the consignment structure work in practice, although I suspect it could. As long as both parties understand what is and isn't in the purchase price, the risk allocation, the impact on post-closing working capital needs, the inventory tracking/valuation system that will be used for the arrangement, etc.

Hi Goran, the inventory should be qualitatively analised to define its current market value. The value of the inventory concurs into forming the value of the net working capital. In an M&A transaction, the difference between the value of the NWC at a certain date and its 12 or 24-month average has an impact on the purchase price. This principle applies also in an asset deal, within the desired perimeter of assets and liabilities.