Reed's Clothier Case Study

RUNNING HEAD: Reed’s Clothier Case Study and Assignments from the Reading

Reed’s Clothier Case Study and Assignments from the Reading

Raina Rain

University of Phoenix

FIN 370 – Thomas Rietta

Summary of Reed’s Clothier Case Study

Reed’s Clothier was a men’s clothing shop founded by Jim Reed in 1934. The store offered clothing to the numbers Virginia Military Institute graduations living in Lexington, Virginia and the surrounding areas. The store has a rough start, barely making enough money to live off of. After World War II, sales began to boom and in 1976, annual sales had rose to $800,000. After retiring in 1976, Jim turned the business to his son Jim Reed II who had been working in the store since 1968. The store was located in a three story building. Remodeling the store left an $880,00 long-term mortgage debt. When Jim Reed II took over, he increase inventory in the store. He believed that the business lost money because they weren’t providing the products in demand by their customers. Sales quickly began to increase reaching $2 million in 1994.

During the past three years, Reed’s positive cash flow was destroyed due to increase in purchases, and interest and principal payments on the mortgage. Reed was always increasing his line of credit and not utilizing the discounts from his suppliers. His accounts were almost 40 past due and suppliers were threatening to stop distributing their supplies if Reed did not pay up. Therefore, Reed asked the bank for another increase in his credit card. This increase was $100,000. Because his banker was a former VMI classmate, he never had difficulties receiving an increase in his line of credit. This time was different. His new banker, Holmes, demanded to see documents of Reed’s financial statements for the business. Reed then had to pay off an overdue balance in order to keep his current line of credit. Suggestions made by Holmes included reducing inventories and accounts receivables to the industry averages....