Can you explain to me why cash flow is higher with LIFO in an inflationary environment? It seems contrary to what I’d think since COGS are higher and thus resulting margins are lower. Thanks!
Pretax cash flows are the same under FIFO and LIFO, but LIFO gives lower taxable income, so lower income taxes; thus, after-tax cash flow is higher under LIFO than under FIFO.
Thank you, sir!
My pleasure.