Question

As a recently hired financial analyst, you have been asked to analyze the efficiency with which Caterpillar has been managing its inventory and to write a short report. Specifically, you have been asked to compute inventory turnover for 2011 based on FIFO and LIFO and to compare the two ratios with two standards: (1) Caterpillar for the prior year 2010 and (2) its chief competitor, John Deere. For 2011, John Deere's inventory turnover was $4.2$ based on FIFO and $5.9$ based on LIFO. In your report, include:
a. The appropriate ratios computed based on FIFO and LIF

Answer 1

Inventory Turnover - LIFO

2011 = $43,578/ (14,544+$9,587)÷2 = $43,578/$12,065.50 = 3.61

Inventory Turnover - FIFO

2010 = $43,731/(16,966+$12,162)÷2 = $43,731/$14,564 = 3.00

Inventory Turnover - LIFO

2010 = $30,367/($9,587+$6,360)÷2 = $30,367/$7,973.50 = 3.81

Inventory Turnover - FIFO

2010 =  $30,814/($12,162+$9,382÷2 = $30,814/$10,772 = 2.86.

John Deere Inventory Ratio -

LIFO - 5.90

FIFO - 4.20.

Inventory refers to all the items, goods, goods, and materials that a business holds for sale in the market to make a profit. Example: If a newsagent uses a vehicle to deliver newspapers to customers, only the newspapers are considered inventory. A car is treated as an asset.

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