Volume 3, No. 8 | The Analyst’s Accounting Observer

Volume 3, No. 8


LIFO Investory: A Hidden Earnings Improver:  Many investors are familiar with the different inventory "flow" assumptions - FIFO and LIFO. Most investors are pleased when they see a company employ the LIFO flow assumption, believing that it delivers a more conservative approach to cost of sales recognition. However, LIFO inventory costing is a complex process that can yield odd results; it can sometimes improve a company's earnings when no real business improvement has taken place. Fortunately, there is enough information in financial statements to prevent analysts from stumbling into LIFO traps - if they know where to look for the information and understand how to use it..

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