Reed's Clothier Inc - Working Capital Policy

Reed's Clothier Inc - Working Capital Policy - Reeds...

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Reed’s Clothier 1 Reed’s Clothier Inc. – Working Capital Policy Holly M. Hyatt August 24, 2011 FIN370/University of Phoenix Instructor: Niki Silver
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Reed’s Clothier 2 Reed’s Clothier Inc. – Working Capital Policy Reed’s Clothier was founded by Jim Reed in 1934 (Sulock & Dunkelberg, 1997, p. 98). The majority of Reed’s customers are graduates from Virginia Military Institute. By 1976, Reed’s annual sales grew to $800,000. The founder decided to retire in 1976, and turned control of the company to Jim Reed II. When Jim Reed II took control he believed low inventory was the reason for low sales. He decided to increase the inventory. Reed’s cash flow was in a positive area but, because the increase in inventory and the interest and payments on his mortgage it affected it. The financial system got worse because of him having a line of credit with the bank. When his line of credit increased he stopped paying cash for supplies and lost out on his discounts. Reed went back to the bank to ask for more money. When he scheduled the meeting with the bank they requested financial records. The new banker was quick to point out his cash flow problems and that the company was going downhill fast. The banker suggested using a consultant in order to get things going and help build a strong inventory. The bank then set conditions for keeping the current line of credit which, was to be payable in the 30 days timeframe. The banker also suggested a inventory reduction as this would help put cash in Reeds hands quickly. Several ratios have been calculated as seen below which will help put the company back to the positive. 1. Quick Ratio determines how healthy an organization is by weighing its assets against
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This note was uploaded on 08/30/2011 for the course FIN 370 FIN 370 taught by Professor Joebrennan during the Spring '09 term at University of Phoenix.

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Reed's Clothier Inc - Working Capital Policy - Reeds...

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