The informational role of inventory writeoffs:pic.twitter.com/HBx7WCvtQI
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Inventory writeoffs "signal" the quality of the retailer. A lower P/E is used to value the company, directly or indirectly.
So basically if you say an inventory carrying company writing off inventory you ascribe them a higher earnings multiple because rather than faking earnings, their taking tax and accounting efficient maneuvers?
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The tax dimension isn't taken into account in this reasoning, the focus is on operations. We value retailers who write off with a lower multiple because they have been growing inventory of low quality and/or facing low demand.
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One shouldn't always do that for the reason that I gave in the previous tweet. The very act of writing down inventory depresses earnings and is a signal that the retailer isn't a bullshitter, both of which suggest a higher p/e multiple.
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