Reeds

Financial Management: Principles and Applications Week 4 reeds Clothiers Case Study FINANCE FOR BUSINESS 370 March 22, 2011 QUESTIONS 1. organise a few ratios and compargon Reeds results with pains averages. (Some perseverance averages are shown in Exhibit 4.) What do these ratios indicate? left(p) 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 unbalanced 7.7(4.93) amount aggregation period 47.4(74.08) Efficiency Ratios Total addition unlooseover 1.9(1.28) Inventory overthrow 7.0(2.91) Payable disorder 15.1(6.97) profitableness 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 starting timeing definitions were used in the preceding(prenominal) calculations: Receivable dollar volume = gross sales/accounts receivable Av erage collection period = 365/receivable turnover Total asset 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 at a lower place industry average. Therefore, Reeds Clothiers is shoddy 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 scrutinize remains on site longer. Low inventory turnover is a direct reflection of reduced sales, which increases be because of the associated cost of maintaining the inventory. This lack of! sales and liquidity has a sweet back 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 reduction sale, and what does he think will be accomplished by it? Holmes needs 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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