Most law firm managers understand intuitively that the value of inventory (both WIP and A/R) degrades over time, but by how much and how quickly? The ability to understand and answer these two questions is the first step in preparing a realistic, forward-looking valuation model - one that can identify opportunities and drive action.
To begin to assess the future value of current inventory, it is important to recognize that there are two different forces diminishing a firm's return on work performed, and both have the same basis: time. In essence the old adage "time is money" is true; as time passes, a firm's inventory becomes less valuable.
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