In a recent annual report, Caterpillar, Inc., a major manufacturer of farm and construction equipment, reported the following information concerning its inventories:

Required:
As a recently hired financial analyst, you have been asked to analyze the efficiency with which Caterpillar has been managing its inventory and to write a short report. Specifically, you have been asked to compute inventory turnover for 1995 based on FIFO and on LIFO and compare the two ratios with two standards: (1) Caterpillar for the prior year 1994 and (2) its chief competitor, John Deere. For 1995, John Deere's inventory turnover was 4.2 based on FIFO and 9.8 based on LIFO. In your report, include 1. The appropriate ratios computed based on FIFO and LIFO. 2. An explanation for the differences in the ratios across the FIFO and LIFO methods. 3. An explanation of whether the FIFO or LIFO ratios provide a more accurate representation of the companies' efficiency in use of inventory.

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The cost of inventories is determined principally by the LIFO (last-in, first-out) method of in- ventory valuation. This method was first adopted for the major portion of inventories in 1950. The value of inventories on the LIFO basis represented approximately 90% of total invento- ries at current cost value on December 31, 1995, 1994, and 1993. If the FIFO (first-in, first- out) method had been in use, inventories would have been $2,103, $2,035, and $1.818 higher than reported at December 31, 1995, 1994, and 1993, respectively.