Benchmarking Thor Industries Inventory Management

The case provides an opportunity for students to use financial statement information to assess Thor Industries’ financial performance and benchmark the company’s inventory management performance against several other companies in the recreation vehicle industry. Thor’s top management wanted to improve its inventory management to reduce investments in net working capital. But differences in accounting methods across companies in the same industry could affect the interpretation of differences in financial performance. One area where accounting methods differed was in the area of inventory valuation. Thor used last-in-first-out (LIFO) to value its inventory, while other recreation vehicle companies used first-in-first-out (FIFO). Thus, the case provides sufficient information for students to make appropriate adjustments to inventory and cost of sales data in order to make an “apples-to-apples” comparison on inventory management. This case has been used in the first financial accounting course in the Thunderbird MBA, as well as in credit training programs, to illustrate financial ratio analysis and the impact of inventory accounting methods on reported financial performance.