Quick ratio under FIFO compared to LIFO

[Tural]

Hi all,

While reading one of the Prep Providers, I came across the following

"The quick ratio is unaffected by the firm’s inventory cost flow method since inventory is excluded from its numerator "

However, when prices are rising, in order to adjust from LIFO to FIFO, as far as I understood the concept, we need to adjust the cash flow because the FIFO results in higher before EBT, which will result in higher taxes, hence, in higher cash outflows. So,does not the quick ratio have to be lower under FIFO, compared to LIFO?

Thanks

[CMLSML]

Assuming rising prices, LIFO should have higher cash balance and hence higher quick ratio.

[S2000magician]

@Tural

Hi all,

While reading one of the Prep Providers, I came across the following

"The quick ratio is unaffected by the firm’s inventory cost flow method since inventory is excluded from its numerator"

However, when prices _ costs _ are rising, in order to adjust from LIFO to FIFO, as far as I understood the concept, we need to adjust the cash flow because the FIFO results in higher before EBT, which will result in higher taxes, hence, in higher cash outflows. So,does not the quick ratio have to be lower under FIFO, compared to LIFO?

Thanks

@CMLSML

Assuming rising prices _ costs _, LIFO should have higher cash balance and hence higher quick ratio.

Be careful here. _ Costs _ are what our suppliers charge us; prices are what we charge our customers.

It’s changing (not necessarily rising) costs that lead to differing inventory values under FIFO and LIFO, not changing prices.