Page 11 - FINAL CFA I SLIDES JUNE 2019 DAY 8

LOS 28.e: Explain LIFO reserve and LIFO liquidation
and their effects on AFS and ratios., p.186 Session Unit 8:
LOS 28.f: Convert reported AFS from LIFO to FIFO for 28. Inventories
purposes of comparison. , p.186

Effect on Ratios (assuming higher prices), p 188

FIFO LIFO

Profitability Ending inventory –higher, Ending inventory –lower,
COGS –lower and hence COGS –higher and hence
Profitability = Higher Profitability = lower
tanties
Liquidity Higher for Current Ratio Lower for Current Ratio
Quick Ratio? Quick Ratio?

Activity Higher for Inventory turnover Higher for Inventory turnover
(COGS/Average Inventory) = Lower (COGS/Average Inventory) = Higher.

Solvency Higher total assets results in Higher total assets results in lower

higher equity (A-L) hence lower equity (A-L) hence higher D/E ratio.

D/E ratio.