Inventory finance
LIFO (Last In, First Out)
By the Supply Chain Manager team · Updated October 16, 2026
LIFO (last in, first out) is an inventory valuation method that charges the most recent purchase costs to cost of goods sold first.
When prices rise, LIFO gives higher COGS and lower taxable profit than FIFO, which is why some US businesses use it. It is not permitted under IFRS, and in the US it is subject to specific tax and reporting rules, so it is a decision for your accountant.
LIFO example
Illustrative numbers: the same 100 units at $4 then 100 at $5, with 150 sold. Under LIFO, COGS = 100 × $5 + 50 × $4 = $700, and the 50 units left are valued at the older $4 cost ($200).
Why LIFO matters for distributors
For planning, the valuation method does not change how much stock you have or need. It changes reported margins and inventory value, which matters when comparing figures across businesses or periods.
Common LIFO mistakes
- Comparing gross margins between a LIFO and a FIFO business without adjusting.
- Confusing LIFO valuation with physically shipping the newest stock first.
Examples on this page use made-up round numbers to show the calculation. They are not benchmarks or results from real businesses.