Company A uses the FIFO method to cost inventory, and Company B uses the weighted- average method. The two companies are exactly alike except for the difference in inventory costing methods. Costs of inventory items for both companies have been rising steadily in recent years, and each company has increased its inventory each year. Each company has paid its tax liability in full for the current year (and all previous years), and each company uses the same accounting methods for both financial reporting and income tax reporting, except for inventory valuation.
Required:
Identify which company will report the higher amount for each of the following ratios. If this is not possible, explain why.
1. Current ratio.
2. Quick ratio.
3. Debt-to-equity ratio.
4. ROE.
5. EPS.