GM506 diss 2

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Purdue University *

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GM506

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Economics

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Nov 24, 2024

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docx

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Uploaded by DrDinosaurPerson592

Good evening everyone. Inflation can have significant effects on both the balance sheet and income statements. This can increase costs of goods, transportation costs, infrastructure costs, and other issues. Inflation can affect the value of fixed assets. If the historical cost of fixed assets is adjusted for inflation, the denominator of the fixed asset turnover ratio would increase, potentially reducing the ratio. This implies that the company generates lower sales per unit of fixed asset investment. Inflation can have mixed impacts on the debt-to-asset ratio. If a company has fixed-rate debt, the value of its assets may increase due to inflation, reducing the ratio. However, if the company has variable-rate debt, interest expenses could rise, negatively impacting net income and potentially increasing the ratio. The cost of borrowing money has the ability to increase which is something that can represent a real issue as well. (Mundell, 2021) It does seem that there are specific strategies that can be applied to promote change and development. If prices rise due to inflation, COGS would increase, potentially leading to a decrease in inventory turnover. As a result, the ratio may decline, indicating that it takes longer to sell and replace inventory. This is something that is important to recognize as the Fed can raise the interest rate as a direct result of inflation as well. It is important that a holistic approach is applied and understood

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