Is it true that it’s always beneficial to minimize taxes paid even though you sacrifice things like net income? For example, FIFO has higher income, higher taxes, but LIFO is preferred because cash flow is higher? Other examples include accelerating depreciation, using operating lease instead of capitalizing lease? In other words, always maximize cash flow (operations) especially? Thanks, Alan
The main difference is accounting profit and economic profit. It has to do with your net operating profits taking into account increases/decreases in invested capital with respect to WACC and ROIC. Generally, depending if you are looking long-term or short-term, as an investor or trader, and as management or an analyst, the higher cash flows from operations will lead to more value added. Search for EVA(economic value added, by Stern & Stewart) on yahoo, and you should find interesting concepts on it. LII covers it, not sure if LI does. If you want a good note sheet on this subject I have one from a previous class, just send me an email. noll87@hotmail.com