Just wondering if someone can clarify why the ROA ratio will be higher under the LIFO inventory accounting method in comparison with the FIFO inventory accounting method. I understand that under LIFO (in the case of rising prices) COGS will be higher which will reduce net income, but the ending inventory and thus total assets will also be lower. I am assuming that the reduced affect on net income from using LIFO as opposed to FIFO will be less than the reduced affect on the ending inventory (total assets). If this is the case, could you elaborate?
think about it brah, rising prices, last in first out rising prices, first in first out assets higher for FIFO or LIFO? return on assets higher or lower for FIFO or LIFO? i cant believe im posting on a Friday night.