Wt Grant

W.T. Grant Case

Once one of the nation's largest retailers, The W.T. Grant Company officially file for bankruptcy on October 2, 1975. The firm was known in the 1960’s as a low-priced soft goods retailer. With pressure from Sears, Montgomery Ward, and JCPenney, the firm decided to dip its toes in suburban centric markets. From 1969-1973 the firm opened 369 new stores in areas that were considered to be less than ideal.

A series of poor executive level decisions comprising of employee compensation and bonus structure, flawed consumer credit terms, and decentralized structuring, contributed to the fall of Grant. From a real quick glance, if one takes a look at the standard ratios, issues can be swiftly identified in 1970 to 1971. However, if one looks closer the firm’s demise started as far back as 1966 and has trended downward ever since. When viewing the firm’s profitability ratios you will see that the ROCE has decreased in 1966 from 16.8% to -84.1% in 1975. The year over year trend suggests that company is not making use of the capital employed. Furthermore, another profitability ratio ROA has shown similar declines annually, with 1970 being the only outlier.

In the case, lax credit terms provided to customers was highly influential to the firm’s struggles. Looking at turnover ratios, accounts receivable turnover ratio is telling, especially in 1970 dropping to 4.6%. The firm’s poor collection processes, a bad credit policy, and poor customer screening have contributed to this result. From a liquidity perspective, both the current and quick ratios show less than stellar trends year over year, providing the assessment that Grant is becoming less liquid and thus less capable of meeting its short-term obligations. A low or decreasing quick ratio generally suggests that a company is over-leveraged, struggling to maintain or grow sales, paying bills too quickly, or collecting receivables too slowly. In addition, solvency and interest coverage...