vibrating reed’s Clothier Case Study & Assignment
1. If we look at the ratios, we find that Reed is poor on all the parameters. Its stream and quick ratio is less than industry and so liquid is poor. It used more assets than the industry and hence the efficiency in the use of assets is low. It keeps much more ancestry and collects specie more slowly and that possible makes the payables turnover low since it pays after a longer time to the creditors.
The profitability is also poor with displace gross margin and net margin. The return on fair play is also less than industry average.
2. Holmes wants Reed to have an inventory reduction sale to generate cash. The none is coming overdue and at that place is not plenty cash to repay hence note. Through an inventory reduction sale, which can be on cash basis, Reed can generate enough cash to repay the note. The note is due for $130,000 and the total inventory with Reed is $491,000. With an inventory reduction sale at reduced prices, enough cash can be generated to repay the note.
3. There is a contingency that it may affect sales.
We look at both(prenominal) the inventories and accounts receivables –
❖ Inventory – reduction in inventory would imply that at some point in time there may not be the type of inventory that is needed for sales. The possibility of stock out increases. Currently there is a spicy amount of inventory and so there is very slim possibility of stock outs. As the inventory is reduced and if it is not managed properly, there is a possibility that right inventory is not available at right time and so a sale is lost.
❖ Receivables – Currently Reed has a very relapse credit polity with average collection period of 74.1 days as compared to industry average of 47.4 days. As it tightens the credit policy, there is a possibility that some customers who were buying due to the higher(prenominal) credit period being given may no longer buy from Reed. Once the...If you want to get a full essay, order it on our website: Ordercustompaper.com
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