Page 21 - FINAL CFA I SLIDES JUNE 2019 DAY 8
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Session Unit 8:
28. Inventories
LOS 28.h: Describe implications of valuing inventory at net realisable value for financial
statements and ratios. p 193
Write downs will:
1. Decreases current and total assets, increases total asset turnover and increases D/A ratio
2. Current ratio decreases but not quick ratio
tanties
3. Inventory turnover (COGS/average inventory)+ and - days on hand and CCC
4. Equity is decreased, increasing D/E ratio
5. Increases COGS, reduces GP, operating margin and net profit margin;
6. % decrease in net income greater than % decrease in Assets or Equity, hence ROA and ROE
are decreased.
Reverse is true for write-ups!
