The Daily Technical #97: How is the terminal value calculated?

Good morning. Welcome to the 97th edition of The Daily Technical. You’re here for one reason so let’s dive in.

First time reading? Sign up here.

OVERVIEW OF YESTERDAY’S QUESTION
What is the difference between LIFO and FIFO, and what are the implications on net income?

First In, First Out (FIFO): Treats the earliest purchased inventory as sold first. This approach impacts the cost of goods sold (COGS) and net income based on inventory cost trends.

Last In, First Out (LIFO): Assumes the most recently purchased inventory is sold first, influencing COGS and net income differently than FIFO.

Rising Inventory Costs:
- FIFO: Records lower COGS with earlier, cheaper inventory considered first. This results in higher net income.
- LIFO: Uses higher COGS as recent, costlier purchases are expensed, leading to lower net income.

Decreasing Inventory Costs:
- FIFO: Records higher COGS with more expensive older inventory, resulting in lower net income.
- LIFO: Results in lower COGS as cheaper, newer inventory is used, leading to higher net income.

Common Mistakes

1. Avoid blanket statements about COGS and net income without considering cost trends. Tailor your explanation by specifying conditions such as rising or decreasing costs. Make the distinction part of your initial analysis rather than an afterthought.

TL;DR

• FIFO Method: Sells older inventory first, impacting COGS and net income based on costs.

• LIFO Method: Sells newer inventory first, yielding different COGS and net income effects.

• Rising Costs: FIFO results in lower COGS and higher net income; LIFO leads to higher COGS and lower net income.

• Decreasing Costs: FIFO leads to higher COGS and lower net income; LIFO results in lower COGS and higher net income.

TODAY’S QUESTION
How is the terminal value calculated?

Type your answer here. Within 60 seconds you’ll have custom feedback in your inbox.

THAT’S A WRAP
Before You Go: Here’s How We Can Help!

Jobs: we’re tracking all open jobs for the classes of 2025 - 2028. Our list is updated daily. Check them out here

Mentorship: if you’re looking for 1:1 career mentorship, reply to this email to book a consultation with one of our coaches.

See you tomorrow,

Mike Lukasevicz
Founder @ HirePrep