LIFO FIFO adjustment

[anajolie23]

Hi all,
Can you please clarify this question,
If a company that uses US GAAP is applying the LIFO method and you want to compare against another company using FIFO, you will need to adjust for this difference, right?
The LIFO method would have a higher COGS (which if compared to FIFO) would result in a lower NOI and therefore lower taxes. Am I correct in this?
So the adjustment from LIFO to FIFO would increase assets by lowering the COGS and affect debt/equity ratio. Is this reasoning correct?
Thank you all for your time and help
The Owl

 

[S2000magician]

anajolie23 wrote:If a company that uses US GAAP is applying the LIFO method and you want to compare against another company using FIFO, you will need to adjust for this difference, right?

That’s correct.

anajolie23 wrote:The LIFO method would have a higher COGS (which if compared to FIFO) would result in a lower NOI and therefore lower taxes. Am I correct in this?

This is true if costs are rising and inventory levels are steady or increasing.
If costs are falling, LIFO COGS could be less than FIFO COGS.
If inventory levels drop then LIFO COGS could be less than FIFO COGS even if costs are rising: you’d have a LIFO liquidation.

anajolie23 wrote:So the adjustment from LIFO to FIFO would increase assets by lowering the COGS and affect debt/equity ratio. Is this reasoning correct?

Under the assumption of rising costs and steady or increasing inventory levels, yes.

anajolie23 wrote:Thank you all for your time and help
The Owl

You’re welcome.
Owls are cool.