Reeds

Financial Management: Principles and Applications Week 4 reeds Clothiers Case Study FINANCE FOR BUSINESS 370 March 22, 2011 QUESTIONS 1. image a few ratios and compargon Reeds results with pains averages. (Some industry averages are shown in Exhibit 4.) What do these ratios indicate? botch 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 debate 7.7(4.93) amount entreaty period 47.4(74.08) Efficiency Ratios Total summation ejectover 1.9(1.28) Inventory perturbation 7.0(2.91) Payable overturn 15.1(6.97) positiveness 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 showtimeing definitions were used in the to a higher place calculations: Receivable disturbance = gross sales/accounts receivable Average collection period = 3 65/receivable turnover Total summation 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 on a lower floor industry average. Therefore, Reeds Clothiers is low-cal and poor in liquidity.

In efficiency, Reeds asset turnover ratio is poor, payable turnover is slight than half(prenominal) of the industry average, and record turnover is extremely low, which meaning stocktaking remains on site longer. Low inventory turnover is a direct reflection of reduced sales, which increases be because of the associated be of maintaining the inv entory. This lack of sales and liquidity h! as 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. wherefore does Holmes indispensability Reeds to have an inventory diminution sale, and what does he think will be accomplished by it? Holmes indispensabilitys Reed to reduce inventory because of the high costs in...If you want to bond a full essay, order it on our website: OrderEssay.net

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