"The cash ratio (cash and cash equivalents ÷ current liabilities) would be lower because cash would have been less under FIFO. " Can anyone explain to me how cash is affected by the adjustment? My understanding is INventory and COGS are affected.
It is obvious to me that earning before taxes must be higher under FIFO. Along with it higher taxes, sure. But taxes are a percentage of EBT, and as long as the tax rate is constant and <100%, I can not end up with less Net Income than I would have if I have an increased EBT. Therefor why is my cash lower?? The way it is stated it sound like: “The more money you earn, the less cash you’ll have”
I really don’t get it