Impacts 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.

Data Science in Finance: 9-Book Bundle

Master R and Python for financial data science with our comprehensive bundle of 9 ebooks.

What's Included:

Getting Started with R

R Programming for Data Science

Data Visualization with R

Financial Time Series Analysis with R

Quantitative Trading Strategies with R

Derivatives with R

Credit Risk Modelling With R

Python for Data Science

Machine Learning in Finance using Python

Each book includes PDFs, explanations, instructions, data files, and R code for all examples.

Get the Bundle for $39 (Regular $57)