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... |