Reed’s Clothier Case Study FIN370 Finance for Business STUDENT University of Phoenix INSTRUCTOR DATE Reed’s Clothier Case Reed’s Clothier Inc. has struggled financially for the past three years. Owner, Jim has requested to his banker Harold Holmes to extend the company’s credit line in order to pay a $130,000 note payable that is going to be due soon. Unfortunately, the banker refused to give any additional credit and recommended to reduce the store’s inventory through an inventory reduction
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Reed’s Clothier Inc. Working Capital Policy The industry’s current ratio is higher than Reed’s Clothiers current ratio at 2.02. The current assets are greater than the current liabilities. If Reed’s Clothier had proper management then they should be able to pay the debts. Reed’s inventory turnover rate is much lower than the industry standards. The industry standard is 7.0 and Reed’s turnover rate was 2.02. This indicates that the inventory is not being sold at the rate it is purchased.
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Reed's Clothier, Inc. Case Study L. S. Moore Finance 370 March 30th, 2011 Reed's Clothier, Inc. Case Study Reed’s Clothier, Inc. Working Capital Policy and the background information, followed by the current situation and the Summary. Questions 1 and 4 will have been answered in an excel spreadsheet. Exhibit 16.1 Reed’s Clothiers Income Statement (in 000’s) Common Size
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Reeds Clothier is a clothing store that has been around since 1936. It was founded by Jim Reed an ex military man from VMI (Virginia Military Institute). The majority of his customers were from VMI and his banking officer was too. I believe that these cozy relationships might have been the cause of the financial distress that occurred in this case. Jim's banking officer was lenient, because he was a friend. Jim had adopted a loose working capital policy with higher current assets than industry averages
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Case 16: REED’S CLOTHIER, INC.: WORKING CAPITAL POLICY As Jim Reed slowly walked the two blocks between the bank and his store, he knew his business was in serious financial trouble once he talked to his new banker, Holmes. He knew that there was something that had to be done to regain control. He had everything going wrong from the inventory being too much to the accounts receivables not being paid on time which were causing him not to be able to raise the cash required to meet its financial
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FIN370 WK4 Q. Briefly summarize the case. In order to increase sales, Reeds Clothier concentrated on increasing inventory. They were afraid that lower inventory level will harm sales. Company renovated the stores and tripled the inventory. But sale did not increase as they expected. While they tripled the inventory, sales doubled only. This resulted in excess inventory. Money was stuck up in inventory. Instead of analyzing the problem and addressing the root cause, company considered it as cash
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