- CFA Exams
- CFA Level I Exam
- Topic 3. Financial Statement Analysis
- Learning Module 22. Inventories
- Subject 6. Financial Analysis of Inventories
CFA Practice Question
A firm using the LIFO inventory valuation method in an inflationary environment will have ______ profit margins and ______ inventory turnover compared to a firm using FIFO.
A. higher; lower
B. lower; higher
C. lower; lower
User Contributed Comments 4
| User | Comment |
|---|---|
| kalps | Inventory turnover will be higher as the more expensive inventory (i.e. last in) is neing sold. |
| poomie83 | Inventory t/o = COGS/inventory LIFO lead higher COGS and lower inventory |
| jcsk | If the more expensive ones are being expensed as part of COG (sold) then shouldn't the closing inventory be valued at the cheaper? Have a look at FIFO VS LIFO example on wikipedia |
| GBolt93 | Yes that's correct. COGS is higher, inventory is lower Turnover = COGS/Avg. Ending inventory, so turnover is higher. COGS is higher so NI is lower. |