Reed's Clothier Case Study

Reed’s Clothier Case Study

The owner of Reed’s Clothier is currently having problems with financially with his company. He is looking at losing his financing from the Bank of First Virginia National. The deadline for the closing note is drawing near, with an amount of $130,000. Currently in reserves Reed only has $85,000 cash and $491,000 in inventory. In order for Reed t meet the needs he must change some of the inventory into cash. Therefore a financial ratio will be done to find the present, future and past financial standings. Financial ratio analysis will be provided to determine the past, present and future financial status of the company.

Ratio Analysis

The ratio is important tools that calculates and reads numbers in the finances of an organization. The ratios can have an answer to many questions regarding financials and often are used to describe the strong and weak points of a company’s finances. The company, Reed’s Clothier, averages 74 days versus 47.4 industrial. Being at less than half of the standard, which is 15.1, the company’s turnover ratio sits at 7.0. These ratios show that Reed has an inability to pay back debts to the creditors. If the company could hold their inventory at 30.9% compared to the average which is 20.0%, the inventory would increase its asset, if there were no generation of revenues. Sailing the inventory would be the best option to increase a cash flow. If the company sold their inventory at about 25% of discount it could raise the cash to maybe over $220,000.If the company would invest in a computer program such as quick books they could keep track of receivables efficiently. The company is not at ends. Sales of the inventory will increase the cash flow, paying debts on time and an inventory control system such as barcodes will allow the organization to manage their finances and debts effectively and efficiently.

References

Basic Finance: An Introduction to Financial Institutions, Investments, and Management (9th...