THE LOSS OF LIFO AND ITS POTENTIAL IMPLICATIONS FOR COMPANY FUNDING OPPORTUNITIES

This case requires the student to examine how a significant change in accounting principle will likely affect the financial condition and future funding situation of Thiel Machinery. Specifically, the student will look at how the probable abolition of the LIFO inventory costing method (as the U.S. moves towards acceptance of the International Financial Reporting Standard) will affect various financial ratios of the company, most notably the Altman Z-score. The student must make pro forma adjustments to the company's existing financial statements that account for the elimination of LIFO and calculate the expected change in the Z-score. Because the company is currently privately-held, the student will also need to estimate the market value of the company's equity using a free cashflow valuation model and examine how reduced cash flows from higher tax payments affect not only financial ratio calculations but potentially the value of the company itself.