Subject - Finance 12. Steel Dynamics [STLD], a Nucor competitor, uses the FIFO inventory method. Selected data for 1997 through 1999 follow ($ in...

Subject - Finance

12. Steel Dynamics [STLD], a Nucor competitor, uses the FIFO inventory method. Selected

data for 1997 through 1999 follow ($ in thousands):

1997 1998 1999

Sales $514,786 $618,821

Cost-of-goods-sold 428,978 487,629

Net Income 31,684 39,430

Ending Inventory $ 60,163 126,706 106,742

Ending Equity 337,595 351,065 391,370

(a) Using reported data, compute each of the following ratios for 1998 and 1999 for

Steel Dynamics:

• Gross profit margin

• Return on equity

• Inventory turnover ratio

(b) Assume that Steel Dynamics used the LIFO inventory method. Redo (a) using adjusted

ratios for Steel Dynamics. For each ratio, use the method(s) you deem most

appropriate and justify your choice.

(c) Explain why the adjustments improve the apparent performance of Steel Dynamics

for 1998 but reduce it for 1999.

(d) Explain why the adjusted ratios provide a more useful comparison for the two

years.

(e) Explain why the adjusted ratios provide a more useful comparison between Steel

Dynamics and Nucor for the two years