If a company switched from LIFO to FIFO, how would that affect your calculation of free cash flow?

Question

IBPrep · Accepted Answer

Switching from LIFO to FIFO means your older inventory, usually cheaper in a rising-price environment, is used first, so COGS on the income statement is lower, which boosts NOPAT. That higher NOPAT is not a cash inflow on its own, but it does increase the cash taxes you pay.

If a company switched from LIFO to FIFO, how would that affect your calculation of free cash flow?

Answer

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