Reeds Clothier Inc Essay Example | Topics and Well Written Essays - 1000 words

Reeds Clothier Inc - Essay Example Reed’s Clothier Inc. To see the actual situation of the firm, we can move forward and discuss Jim’s financial ratios. The first and most important ratio is the current ratio. This gives an idea of liquidity of the firm. It is not good not to be liquid or to be extremely liquidated. The best balanced sheet has a combination of fixed and current assets. Too many of receivables are not good although they may increase the value of assets but they indicate a weak receivable control system. The industry current ratio is 2.7, while for Jim’s company it is 2.01 (Calculated by dividing current assets with current liabilities) Quick ratio for the industry is 1.6. For Jim Reed’s company it is 1.4. 1 : 1 is the least acceptable ratio. Reed’s is lagging behind in both these ratios from industry standards. Another ratio that proves and shows that the Reed’s company is in bad financial shape is Receivable turnover. If this ratio is high, it indicates higher credit policy. If this rati o is low, it shows there are loopholes in receivables policy. The value for industry is 20.1 while this company has the ratio of 26.0. This once again indicates that due to lack of attention, the company finances are suffering. (White, Sondhi and Fried, 1997) Inventory turnover needs to be high as that indicates good sales against inventory. The figure for industry is 7 which is good. The exhibit 5 show that in case of Reed’s the sales are related to inventory, but with increasing stock the increase in sales is not correlation.