Why might disinflation prove to be favorable

Why might disinflation prove favorable to financial assets? The following financial statement data for years ending December 31 for Foodworks Company are shown below.

Determine the ratio of net sales to assets for and Does the change in the ratio of net sales to assets from to Why might it be necessary for a parent company to prepare unconsolidated financial statements as well as consolidated statements? View Solution: Why might it be necessary for a parent company to. View Solution: Why might the market value of the assets of a. View Solution: Why might depreciation on a company s financial statements be di.

Create an Account and Get the Solution. Log into your existing Transtutors account. That means an economy can continue to grow for years. Normally, economies bounce back from recessions and, after five to six years of strong growth, they become overheated, with both wages and prices moving upward sharply.

Central banks then have to raise interest rates to cool down the strong demand. But there was no bounce-back after the global financial crisis and recession of ; just moderate growth. So, there are no signs of overheating and most global portfolio managers believe we are in a disinflationary period in most countries.

The possible exception is Europe, where growth has been so weak that deflation is possible. By last autumn, eurozone inflation had turned marginally negative, with consumer prices down by 0. But if Europe goes into recession, the downward price trend could continue. Japan also is a concern. The country desperately needs consumers to increase their spending to get prices on an upward path.

That requires more jobs and higher wages. The Bank of Japan and the government are doing all they can to achieve this. See story on page B Many portfolio managers are hopeful that Japan can get on a sustainable growth path. But they admit the challenges are so great that Japan could slip back into virtually no growth and deflation. Competitive pressures in the industry might change as might the general business environment. Discuss the possible impact of inflation on the following ratios and explain the direction of the impact based on your assumptions.

A great change in ratios will occur as expensive inventory is charged against softening prices. Softening in prices reduces the perceived need to hold real assets as a hedge against inflation. Investment shift then to financial assets. There are many different ways of recognizing data for financial reports which can affect the profit and other ratios for example;. Return on total assets? Return on investment Inflation will tend to make this trend higher over time as investment assets are recorded at historical old low values while income is recorded at inflated new values Inventory turnover Again inflation will make this ratio trend higher as Sales are recorded at the inflated new rate compared to the older value for Inventory.

Fixed Asset Turnover Again inflation will trend this ratio higher as sales are recorded at a lower inflated price while fixed assets are recorded at historical lower prices.