Fin 370 Week 4 Individual Assignment Reeds Clothier Case Study and Questions

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FIN 370 Week 4 Individual Assignment Reeds Clothier Case Study and Questions
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. Briefly summarize the case.
In order to increase sales, Reeds Clothier concentrated on increasing inventory. They were afraid that lower inventory level will harm sales. Company renovated the stores and tripled the inventory. But sale did not increase as they expected. While they
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Briefly summarize the case.
In order to increase sales, Reeds Clothier concentrated on increasing inventory. They were afraid that lower inventory level will harm sales. Company renovated the stores and tripled the inventory. But sale did not increase as they expected. While they tripled the inventory, sales doubled only. This resulted in excess inventory. Money was stuck up in inventory. Instead of analyzing the problem and addressing the root cause, company considered it as cash problem and tried to solve the problem by having progressively larger line of credit. But increasing the line of credit could not solve the problem. When banks demanded payment, severity of the issue came to the attention of the owners of Reeds Clothier. Now they are trying to analyzing financial problem and finding solution.
Q. Calculate a few ratios and compare Reed’s results with industry averages. (Some industry averages are shown in Exhibit 4.) What do these ratios indicate?
Answer:
Formulae:
Current Ratio = current assets/current liabilities
Quick Ratio = (current assets-inventory)/current liabilities
Gross Profit Margin = EBIDTA/sales
Net Profit Margin = PAT/Sales

FIN 370 Week 4 Individual Assignment Reeds Clothier Case Study and Questions
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