Pactiv Corporation Case Study
(1) What was the impact of this inventory valuation method change on the end of year 2009 earnings per share?
(2) Does the end of year 2009 Cost of Goods Sold go up or down with this inventory valuation method change to FIFO?
(3) Based on your answer to (2), what does this indicate about the direction of inventory prices? Was there inflation in prices or deflation?
(4) There are four bullet points near the beginning of the press release that articulate the firm’s reasons for the change to FIFO. Explain what they mean in the second bullet that refers to “better matching of sales and expenses…” Do you agree that this change accomplishes this?
(5) Assume you are an investor in Pactiv Corporation and you hold a material number of shares in the company. Does this announcement affect your assessment of the value of the company? If so, why?