Inventory Control Methods

Inventory Control Methods
Name
Institutional Affiliation
Date
Inventory Control Methods
The use of FIFO as a method of stock valuation overstates the company’s profits. This will reflect the good performance of the company which could not be as well as it performs using other methods of stock Valuation. However, Jason decides to take the initiative and deviate from other methods to use FIFO to his advantage (Service, n.d.). It is unethical, especially since he does not disclose the reason for using the method of stock valuation. Although it might reflect well on the company performance and his management; over time, the effect of this decision will be felt which may not be to the liking of many especially the shareholders. The decision to base the management remuneration on the company’s performance may not be the best for some managers, like Jason may manipulate the reports (Service, n.d.) to their liking to earn more money.
The inventory turnover ratio for the companies, JC Penney and Sears Holdings indicate an increase from the previous year. For JCPenney being 2.91 in 2018 from 2.90 in 2017 while that of Sears is 3.90 from 3.82 in 2017. It shows how efficiently the firm operates by turning its inventory into sales. On average, Sears sells its inventory four times in a year, while JCPenney sells thrice in a year. This being equivalent of approximately, 120 inventory days for JCPenney and 90 inventory days for Sears Holdings. Nonetheless, the difference in inventory turnover ratio, between Sears and JCPenney, could be as a result of using different methods of valuation, whereby LIFO results in higher turnover ratio.

While a company using the FIFO method of stock valuation will have a lower inventory turnover ratio. The method of inventory control, notwithstanding, the low inventory turnover ratio, could be an indicator of lower sales which does not reflect well on the company or Jason, the CEO.
References
Service, B. D. (n.d.). CEO pay, earnings manipulation linked. Retrieved from http://www.ur.umich.edu/0304/Jan19_04/10.shtml