Beruflich Dokumente
Kultur Dokumente
2,000 Beg.
2,000 Beg.
Exclude:
selling costs
freight-out (delivery to customers)
storage for ready-to-sell goods
5.3.4. Financial statement impact of cost flow assumptions
If prices are increasing then following are true (opposite if prices are decreasing)
LIFO will show lower profit as more recent costs are matched to sales
LIFO will show lower inventory values because it reflects older market prices
Since LIFO ending inventories can be significantly lower than replacement costs, companies
using LIFO are required to disclose the amount at which the inventories would have been had the
company used FIFO method. The difference between these two methods is called LIFO reserve.
FIFO Inventory - LIFO Inventory = LIFO reserve
LIFO reserve can be viewed as an unrealized holding gain. A gain that results from holding
inventory as prices are rising
Disclosure of LIFO gain : The amount by which net income would be increased if the liquidation
had not occurred
5.6. Analysis of operating activities
Gross margin ratio = (Sales Cost of goods sold) / Sales
High ratio indicates some combination of higher product pricing and low product costs
Determined by competitive advantage of the firm
Working capital days or cash conversion cycle = Receivables days + Inventory days Payable days
This indicates the number of days cash is stuck in the operating cycle. Generally lower the better for liquidity
purposes
5.3.5. Lower of cost or market