why cash flow is high under LIFO versus FIFO?
TAX
in a rising price environment LIFO will yield higher COGS for a given period… if COGS are higher then earnings will be lower and TAXES will also be lower (since your being taxed on lower earnings). Therefore on a CF basis lower cash taxe expense will cause higher cashflows.
LIFO pays less taxes and also lead to lower income. Therefore, Lower Cash flow versus FiFO pays higher taxes but still report higher income than LIFO method.
ssdnola Wrote: ------------------------------------------------------- > LIFO pays less taxes and also lead to lower > income. Therefore, Lower Cash flow versus FiFO > pays higher taxes but still report higher income > than LIFO method. correct, a firm has to make a tradeoff b/t better EPS or better cash flow. Most firms want that sexy EPS and higher gross margin %, so they will take FIFO when prices are going up, see lower CF but nicer bottom line