CFA Practice Question

CFA Practice Question

Under FIFO compared with LIFO, ______.
A. a company would have a lower quick ratio if prices are rising.
B. a company would have a greater current ratio if prices are rising.
C. a company would have a greater current ratio if prices are falling.
Explanation: Under FIFO, inventory is valued at current prices. If prices are rising inventory would have a higher value under FIFO than LIFO. As a result, the current ratio will be greater under FIFO.

User Contributed Comments 2

User Comment
jackwez liquidity ratio = current ratio... NOT quick ratio! ARGH
prigopou quick ratio doesn't include inventory, hence FIFO or LIFO has no effect on it...
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