• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer
Finance Train

Finance Train

High Quality tutorials for finance, risk, data science

  • Home
  • Data Science
  • CFA® Exam
  • PRM Exam
  • Tutorials
  • Careers
  • Products
  • Login

Impacts of LIFO and FIFO Inventory Methods on Selected Financial Ratios

Financial Careers

The following table summarizes the impact of LIFO and FIFO inventory methods on selected financial ratios.

FINANCIAL STATEMENT/RATIO FIFO LIFO
Net Income and Profit Margins Usually higher in a rising price environment. Usually lower in a rising price environment.
Pre-tax Cash Flow Same. Same.
After-tax Cash Flow Usually lower in a rising price environment because a company is reporting higher net income due to lower COGS. Usually higher in a rising price environment because a company is reporting lower net income due to higher COGS.
Current Ratio = Current Assets/Current Liabilities Usually higher in a rising price environment because reported inventories are more valuable and COGS is lower. Usually lower in a rising price environment because reported inventories are based on lower cost purchases and higher COGS.
Inventory Turnover = COGS/Avg. Inventory Usually lower in a rising price environment because the average cost of inventory will be higher. Usually higher in a rising price environment because the average cost of inventory will be lower.
Debt-to-Equity Ratio = Total Interest Bearing Debt/Total Shareholders’ Equity Usually lower in a rising price environment. Usually higher in a rising price environment.
Return on Assets
=Net Income/ Avg. Total Assets
Return on Equity
= Net Income / Avg. Total Equity
Usually higher in a rising price environment because net income is higher. Usually lower in a rising price environment because net income is lower.

Join Our Facebook Group - Finance, Risk and Data Science

Posts You May Like

How to Improve your Financial Health

CFA® Exam Overview and Guidelines (Updated for 2021)

Changing Themes (Look and Feel) in ggplot2 in R

Coordinates in ggplot2 in R

Facets for ggplot2 Charts in R (Faceting Layer)

Reader Interactions

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Primary Sidebar

In this Course

Latest Tutorials

    • Data Visualization with R
    • Derivatives with R
    • Machine Learning in Finance Using Python
    • Credit Risk Modelling in R
    • Quantitative Trading Strategies in R
    • Financial Time Series Analysis in R
    • VaR Mapping
    • Option Valuation
    • Financial Reporting Standards
    • Fraud
Facebook Group

Membership

Unlock full access to Finance Train and see the entire library of member-only content and resources.

Subscribe

Footer

Recent Posts

  • How to Improve your Financial Health
  • CFA® Exam Overview and Guidelines (Updated for 2021)
  • Changing Themes (Look and Feel) in ggplot2 in R
  • Coordinates in ggplot2 in R
  • Facets for ggplot2 Charts in R (Faceting Layer)

Products

  • Level I Authority for CFA® Exam
  • CFA Level I Practice Questions
  • CFA Level I Mock Exam
  • Level II Question Bank for CFA® Exam
  • PRM Exam 1 Practice Question Bank
  • All Products

Quick Links

  • Privacy Policy
  • Contact Us

CFA Institute does not endorse, promote or warrant the accuracy or quality of Finance Train. CFA® and Chartered Financial Analyst® are registered trademarks owned by CFA Institute.

Copyright © 2021 Finance Train. All rights reserved.

  • About Us
  • Privacy Policy
  • Contact Us