How does inventory and backlog factor into valuation?

Much has been said already on the topic, but it's important to understand what the backlog actually includes - could all $9M of work start tomorrow? Often times the answer is no. If nothing new were added to the backlog, how long until the company would complete the $9M in work? These questions can help you get a sense of the sales cycle of the business, and you do want a business with a healthy backlog (which I assume is work they are actually contracted to perform, not just a pending sales pipeline). However, you're obviously going to value a company differently if $9M in backlog gets completed over 9 years vs over 1 year. For inventory...if he could make more money selling off the inventory than in selling the business, perhaps he should consider that route. Many have already commented on inventory valuation, but in the end the inventory is just a cog in the profit engine, which brings you back to looking at the company's financial statments.

Late to the party here, but is this true backlog (work that has yet to be completed and revenue/expenses yet to be collected/incurred)? Or is it a service obligation where revenues have already been collected (i.e., deferred revenue in the accounting world)? Backlog has value if there's a benefit to be had from it. It reduces the risk associated with future revenue because it is already secured. However, poorly priced contracts can result in projects that are not profitable, which then begs the question of whether you really want to buy it.

Backlog doesn't always have value and oftentimes terminology gets mixed up. Aside from the above, backlog is finite and may not necessarily recur in the futureso paying a multiple on backlog would not make sense.

I agree with what has already been stated regarding inventory. We see lots of deals these days with big working capital adjustments because sellers held inventory on the books that wasn't going to turn.