Reed's Clothier

Reed’s Clothier

Reed’s Clothiers was once a profitable store for VMI graduates. Jim Reed had opened the store in 1934 and his son Jim Reed II took over the store in 1976. Mr. Reed II slowly increased inventory but the profit of the store was not growing as fast. Before Mr. Reed II knew it his store was in financial trouble and he needed help getting the store back on track. He turned to bank again looking for a loan to bail him out when he needed to look at his financial records and inventory.

1.

| Reed | Industry | |

Liquidity Ratios | | | |

Current ratio | 2.02 | 2.70 | |

Quick ratio | 0.94 | 1.60 | |

Receivables turnover | 4.93 | 7.70 | |

Average collection period | 74.08 | 47.40 | |

| | | |

Efficiency Ratios | | | |

Total asset turnover | 1.28 | 1.90 | |

Inventory turnover | 2.91 | 7.00 | |

Payable turnover | 6.97 | 15.10 | |

| | | |

Profitability Ratios | | | |

Gross profit margin | 29.8% | 33 | |

Net profit margin | 4.2% | 7.8 | |

Return on common equity | 16.0% | 25.9 | |

2.

If Reed has an inventory reduction sale it will bring in more customers which means more sales. The profit from the sale will help to pay off debt.

3.

Possibly, the fewer items available means that he might not sell as much but he will have less cash going out .

5.

I would suggest that Mr. Reed have the inventory sale and then take inventory. Put everything into excel or some inventory program. I would suggest for his to take inventory at least twice a year preferably every season. If he was to do this he would get an idea of what is selling and when.

6.

I would suggest that Mr. Reed offers a discount. If he was to offer a discount more people may pay on time.

7.

Sales of doubled but inventory has tripled. I would say a little but not as much as Mr. Reed thinks.

8.

22.6%