Question

How do you think the ratios are affected via inventory methods, meaning if one company used LIFO and the other used FIFO?

Answer 1

Ratios are affected by inventory method because the company is using Last in first out or first in first out method then it will be having an impact on the overall inventory valuation of the business because inventory valuation of the business will be constantly changing upon the use of various methods of inventories because first in first out method will be reflecting high valuation of the closing stock whereas last in first out will be reflecting a lower valuation of the closing stock so it will be relating to difference in the pricing of the inventory which are affecting the overall ratios of the company.