Morgan Manufacturing Case

671 Words 3 Pages
Register to read the introduction… Using information from the adjusted balance sheet and income statement to compare Morgan Manufacturing and Westwood (Exhibit 3), we can get new comparison results after Morgan’s LIFO to FIFO conversion: Ratio | Morgan Manufacturing | Westwood, Inc. | Difference | Gross margin percentage | 47.5% | 45% | +2.5% | Pre-tax return on sales | 17.5% | 15% | +2.5% | Pre-tax return on assets | 15.6% | 13.4% | +2.2% |

From these new comparison results, we can conclude that Morgan Manufacturing’s operations were relatively more efficient because their three key ratios were all higher than Westwood’s. Higher gross margin percentage illustrates better ability to generate profit, higher pre-tax return on sales explains that Morgan did better in managing operating expenses, and higher pre-tax return on assets shows more income they gained from every one dollar in assets. From this case, we can see that the choice of inventory accounting methods affects comparison of performance of the two companies on the key measures. When Morgan chose LIFO, the key ratios demonstrate Morgan was lower than Westwood. But after LIFO to FIFO conversion, the results were totally opposite. So using the same inventory accounting method is significant to evaluate a company’s performance based on the comparison of financial results of different

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