Entête de question

Robert Groff, an equity analyst, is preparing a report on Crux Corp. As part of his report, Groff makes a comparative financial analysis between Crux and its two main competitors, Rolby Corp. and Mikko Inc. Crux and Mikko report under US GAAP and Rolby reports under IFRS.

Groff gathers information on Crux, Rolby, and Mikko. The relevant financial information on the three companies, and on the industry, is provided in Exhibit 1.

Exhibit 1: Selected Financial Information (millions of US dollars)
A. Balance Sheets and Income Statements
CruxRolbyMikko
Inventory valuation methodLIFOFIFOLIFO
From the Balance Sheets
As of 31 December 2018
Inventory, gross480620510
Valuation allowance202514
Inventory, net460595496
Total debt1,122850732
Total shareholders’ equity2,5432,4032,091
As of 31 December 2017
Inventory, gross465602401
Valuation allowance231512
Inventory, net442587389
From the Income Statements
Year Ended 31 December 2018
Revenues4,6095,4423,503
Cost of goods solda3,1203,7822,550
Net income229327205
aCharges included in cost of goods sold for inventory write-downs*131515
B. LIFO Reserve
LIFO Reserve
As of 31 December 201855077
As of 31 December 201772050
As of 31 December 201696043
Tax Rate
Effective tax rate30%30%30%
C. Industry Information
201820172016
Raw materials price index112105100
Finished goods price index114106100

*This does not match the change in the inventory valuation allowance because the valuation allowance is reduced to reflect the valuation allowance attached to items sold and increased for additional necessary write-downs.

To compare the financial performance of the three companies, Groff decides to convert LIFO figures into FIFO figures, and adjust figures to assume no valuation allowance is recognized by any company.