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Rosa Flores wk 4 individual

Rosa Flores wk 4 individual - Reed's Clothiers 1 Reed's...

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Reed’s Clothiers 1 Reed’s Clothiers Rosa L. Flores Business for Finance/FIN370 University of Phoenix Prof. Ellen King October 26, 2009
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Reed’s Clothiers 2 Reed’s Clothiers Jim Reed, owner of Reed’s Clothier, is suffering economic problems. Reed is facing a distinct loss of financing by the First Virginia National Bank. The 30-day time limit is concluding in on a $130,000 bank note. Reed has money in reserves in the amount $85,000 and cash in inventory in the sum of $491,000. To meet financial responsibility of the business, Reed has to change a fraction of the inventory into money. Financial ratio analysis will be offered in the form of question and answers to establish the financial history of the company, and to establish the future financial status of the organization, to settle on the best methods to re- establish financial standings of the company. Q&A Analysis 1. Calculate a few ratios and compare Reed's results with industry averages. (Some industry averages are shown in Exhibit 16.4 .) What do these ratios indicate? Exhibit 16.4. Reed's Clothiers Selected Ratios * Liquidity Ratios Industry Current ratio 2.7 Quick ratio 1.6 Receivables turnover 7.7 Average collection period 47.4 Efficiency Ratios Total asset turnover 1.9 Inventory turnover 7.0 Payable turnover 15.1 Profitability Ratios Gross profit margin 33.0 Net profit margin 7.8 Return on common equity25.9
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Reed’s Clothiers 3 Liquidity Ratios Reed Industr y Current ratio 2. 0 2.7 Quick ratio 0.9 4 1.6 Receivables turnover 4.9 3 7.7 Average collection period 74. 08 47.4 Efficiency Ratios Total asset turnover 1.2 8 1.9 Inventory turnover 2.9 1 7 Payable turnover 6.9 7 15.1 Profitability Ratios Gross profit margin 29.8% 33 Net profit margin 4.2% 7.8 Return on common equity 16.0% 25.9 If we look at the ratios, we find that Reed is poor on all the parameters. Its current and quick
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