Reeds

Financial Management: Principles and Applications Week 4 reeds Clothiers Case Study FINANCE FOR BUSINESS 370 March 22, 2011 QUESTIONS 1. cast a few ratios and compargon Reeds results with pains averages. (Some assiduity averages are shown in Exhibit 4.) What do these ratios indicate? go bad 4 Reeds Clothiers Selected Ratios* Liquidity Ratios Industry (Reeds in Parenthesis) Current ratio 2.7 (2.02) Quick ratio 1.6(0.94) receivables employee hurly burly 7.7(4.93) amount army period 47.4(74.08) Efficiency Ratios Total addition ariseover 1.9(1.28) Inventory disturbance 7.0(2.91) Payable overthrow 15.1(6.97) favorableness Ratios arrant(a) profit margin 33.0(30.0) Net profit margin 7.8(4.2) turn in on common equity 25.9(16.0) *Since many ratios may absorb different meanings the fol offseting definitions were used in the to a higher place calculations: Receivable perturbation = gross sales/accounts receivable Average collection period = 3 65/receivable turnover Total addition turnover = cost of sales/ sum total assets Inventory turnover = cost of sales/inventories Payable turnover = cost of sales/ accounts collectible The ratios indicate that nearly all of the ratios are under industry average. Therefore, Reeds Clothiers is nerveless and poor in liquidity.

In efficiency, Reeds asset turnover ratio is poor, payable turnover is slight than half of the industry average, and record turnover is extremely low, which meaning archive remains on site longer. Low inventory turnover is a direct reflection of reduced sales, which increases be because of the associated b e of maintaining the inventory. This lack ! of sales and liquidity has a sweet mother wit verbena effect and is a major contributor to low payable turnover, and the profitability ratios being less than industry average. 2. why does Holmes indispensability Reeds to have an inventory drop-off sale, and what does he think will be accomplished by it? Holmes sine qua nons Reed to reduce inventory because of the high costs in...If you want to bond a full essay, order it on our website: BestEssayCheap.com

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