Molson Hart

I don't understand this graph sorry - can you explain it? Inventory is written off for tax and accounting reasons all the time, so I wouldn't read much into it.

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?

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.