Page 19 - FINAL CFA I SLIDES JUNE 2019 DAY 8

LOS 28.k: Calculate and compare ratios of companies, including
companies that use different inventory methods.
LOS 28.l: Analyze and compare the AFS of companies, including Session Unit 8:
companies that use different inventory methods. p.195 28. Inventories

Example: VP. is a high-performance bicycle manufacturer. Its balance sheets (20X5 and 20X6) and an income statement
(2006), prepared using LIFO is provided. Calculate the CR, inventory turnover, long-term D/E, GP margin, net profit
margin, and return on assets ratio for 20X6 for both LIFO and FIFO inventory cost flow methods.
tanties

95 = -20 (-0.2* 100) + = 77 = -18 (-0.2* 90) + Subtract 100- 90 = -10 + = 2990

410 = 100+ 380 = 90+

Add 20% of 10 = 2+ 92
= 218

Inventory footnote: The company uses the LIFO inventory cost flow method.
Had FIFO been used, inventories would have been:
• $100 higher in 20X6 and $90 higher in 20X5 (this is LIFO reserve).
• The tax rate for 20X5 and 20X6 was 20%.

430 = 100+ 270 = 90+
410 = -20 252 = -18