Reed Clothier Case Study

1. Calculate a few ratios and compare Reed's results with industry averages. (Some industry averages are shown in Exhibit 16.4.) What do these ratios indicate?

Reed's Clothiers Selected Ratios*

|Liquidity Ratios |Industry |

|Current ratio |2.7 |

|Quick ratio |1.6 |

|Receivables turnover |7.7 |

|Average collection period |47.4 |

| | |

|Efficiency Ratios | |

|Total asset turnover |1.9 |

|Inventory turnover |7.0 |

|Payable turnover |15.1 |

| | |

|Profitability Ratios | |

|Gross profit margin |33.0 |

|Net profit margin |7.8 |

|Return on common equity |25.9 |

|Liquidity Ratios |Reed |Industry |

|Current ratio | 2.0 |2.7 |

|Quick ratio | 0.94 |1.6 |

|Receivables turnover | 4.93 |7.7 |

|Average collection period | 74.08 |47.4 |

| | | |

|Efficiency Ratios | | |

|Total asset turnover | 1.28 |1.9 |

|Inventory turnover | 2.91 |7 |

|Payable turnover | 6.97 |15.1 |

| | | |

|Profitability Ratios | | |

|Gross profit margin |29.8% |33 |

|Net...