If a company uses FIFO in a rising price environment, would the company’s Price to Earnings and Price to Book multiples be: overstated or understated (than if the company uses LIFO) ?
See page 2 of the forum, isn’t this the same question? http://www.analystforum.com/phorums/read.php?11,706987
http://www.analystforum.com/phorums/read.php?11,706987 Was discussed earlier today. FIFO in rising prices underestimates COGS=>overestimates NI=>overestimates Earnings, Retained Earnings => Overestimates Equity P/E underestimated P/BV underestimated
COGS is understated, so earnings are overstated, inventory balance is higher than with LIFO, so assets and equity are higher, so both are understated.