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If an company switched from LIFO to FIFO, how would the asset turnover ratio be affected?...

If an company switched from LIFO to FIFO, how would the asset turnover ratio be affected? Explain your reasoning.

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Ans : There will be a direct impact of change in method of inventory valuation on the asset turnover ratio depending on the prevailing sitauation. For instance during the time of increasing price , if company uses the FIFO method then the cost of goods sold will be less and the inventory lieng in the stock will be of the higher cost so the value of asset will be high therefore the asset turnover will be high and viceversa will be the situation in case of falling price and asset turnover will be less.

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