Ending Inventory - FIFO and LIFO

CFA Level I FRA
#1

In periods of rising and declining prices, am I right in saying that gross profit is correlated with inventory?

e.g. if gross profit is higher, ending inventory is higher and vice versa?

#2

_ Positively _ correlated.

Probably strongly, positively correlated.

#3

Thank you. And this applies under both rising and declining price scenarios?

#4

It should apply under all scenarios.

The correlation won’t be perfect, of course, because you may have unusually high or low purchases one year, but by and large it should be positive and pretty near one.

#5

Thank you.

#6

You’re welcome.