Reed's Clothier, Inc.

In: Business and Management

Submitted By dianei
Words 1621
Pages 7
QUESTIONS
1. Calculate a few ratios and compare Reed's results with industry averages.
(Some industry averages are shown in Exhibit 4.) What do these ratios indicate?
2. Why does Holmes want Reed's to have an inventory reduction sale, and what does he think will be accomplished by it?
3. XXXXX XXXXX had adopted a very loose working capital policy with higher current assets than industry averages. If he merely tightens his working capital policy to the averages, should this affect his sales?
4. Assuming that Reed's can improve its operations to be in line with the industry averages, construct a 1995 pro forma income statement. Assume that net sales will be reduced 5 percent to $1,938,000 but that depreciation and amortization will not change but remain at $32,000.
5. What type of inventory control system would you suggest to XXXXX XXXXX?
6. What type of accounts receivable control would you suggest to XXXXX XXXXX?
7. Is the increase in sales related to the increase in inventory? (See Exhibit 5.)
8. What is Reed's cost of not taking the suppliers' discounts?

Reed's Clothier Case Study

Introductory Case Summary
Jim Reed II is facing a dilemma of negative cash flow due to his business being slow.
Jim’s decision for an increase of inventory has brought on uncontrollable debts. He was in hopes of increasing his line of credit thru his bank, but is rejected due to delinquency in the payment history and owing the bank $130,000 which needs to be paid within
30 days.
Jim Reed’s personal banker, Harold Holmes, suggested rapid changes to the business, in order to regain control and pay off debts. Some of these changes include: hiring a consultant to overlook the financial situation and help manage Reed’s Clothier’s inventory system and reducing inventory and accounts receivables to the industry average. After going over the balance sheet, Holmes…...

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