The use of different inventory valuation methods by two companies will have an impact on the ratio comparisons.

Question

Quizplus · Accepted Answer

The inventory valuation method used by a company affects the cost of goods sold and the value of inventory on the balance sheet, which in turn impacts the calculation of financial ratios such as inventory turnover, gross profit margin, and return on assets. Therefore, companies using different inventory valuation methods may have different ratios, making ratio comparisons challenging.

The Use of Different Inventory Valuation Methods by Two Companies