Required Readings 1

Revenue
http://www.scribd.com/doc/27887813/Analysis-and-Use-of-Financial-StatementsSONDHI-WHITE#scribd
From a balance sheet perspective, therefore. Inventories based on an FIFO are
preferable to those presented under LIFO, as carrying values most closely reflect
current cost. In other words, FIFO provides a measure of inventory that is closer
to its current (economic) value.
FIFO provides the best measure for the balance sheet as it better reflect current
inventory values. However LIFO is a better measure of the current income and
future profitability (in a stable or growth economy) as it takes into account the
replacement cost of any goods sold.
LFIO VS FIFO

In the period of rising prices and stable or increasing inventory quantities.

The use of LIFO results in higher COGS expense and lower reported
income.
Same method of inventory accounting should be used for tax purposes
and financial reporting
LIFO accounting results in higher cashflow which can distort the perception
on a companys liquidity.

In periods of rising prices and stable or increasing inventory quantities, the

impact of LIFO and FIFO on financial statements can be summarised as
LIFO
COGS
Higher
Income before taxes
Lower
Income Taxes
Lower
Net Income
Lower
Cash flow
Higher
Inventory Balance
Lower
Working Capital
Lower
*Cash flow is more important while rest are constructs

FIFO
Lower
Higher
Higher
Higher
Lower
Higher
Higher
of other factors.

EBITDA (Earnings before interest tax depreciation and amortisation)