“Reed’s Clothier” Case Study and Questions Essay

1562 Words Apr 8th, 2013 7 Pages
“Reed’s Clothier” Case Study and Questions
University of Phoenix

“Reed’s Clothier” Case Study and Questions
Reed’s Clothier Case Study Analysis Jim Reed, II the owner of Reed’s Clothier, a men’s clothing establishment is facing financial difficulties. Established in 1934, by Jim Reed to cater to the numerous Virginia Military Institute (VMI) graduates, the business struggled for the first several years. By 1976, the business annual sales had grown to $800,000, where Jim Reed decided to retire and hand over the business to his son, Jim Reed II. In 1981, Jim decided to expand retail floor space and acquired an $880,000 long-term mortgage debt. During this time, Jim increased inventories with the belief that higher inventories
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After Jim spoke with Holmes, Jim finally realized that the business was in serious financial trouble. Rich in inventory, yet short in cash, Jim Reed must quickly liquidate inventory in order to meet his financial obligations. Through analyzing the various financial ratios, we hope to gain insight into how Reed can restore his family business to a healthy financial position.
Reed’s Clothier Question 1 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?
| |Reed's | |Industry |
|Liquidity Ratios | | | |
|Current ratio |2.0 | |2.7 |
|Quick ratio |0.9 | |1.6 |
|Receivables turnover |4.9 | |7.7 |
|Average collection period |74.1 | |47.4 |
| | | | |
|Efficiency Ratios | |

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