Reed's Clothiers, Inc.

Paper Summary:

This paper discusses the case study of Reed's Clothiers, Inc. which is a business that is beginning to face serious financial trouble and struggling to regain control. The paper describes the changes to the management of inventory and accounts receivable that the owner must make and the results that he hopes to achieve by doing so. It specifically discusses how this may result in a reduction of accounts payable and an increase in sales. A pro forma income statement for the company is included with the paper.

From the Paper:

"Looking at Exhibit 5 above, it would appear that the increase in sales is related to the increase in inventory, but the information is not sufficient to make such a conclusion. Over the course of 10 years, inventory tripled, suppliers were not paid, notes payable was past due, and accounts receivables were well overdue. In this author's opinion, sales may have increased because there were more products available, but Exhibit 5 does not take into account the moneys that are owed and the liquidity of the company. More inventory does not equal greater sales. Lastly, Reed's cost of not taking the supplier's discounts is simply that his decision has cost him additional cash flow that would possibly have helped him to pay his suppliers or at least to help pay the past due notes payable amount, allowing him to obtain the much needed credit line increase."

Sample of Sources Used:

• Credit Research Foundation (1999). Ratios and Formulas in Customer Financial Analysis. Retrieved August 17, 2008, from http://www.crfonline.org/orc/cro/cro-16.html
• Investopedia.com (2008). Receivables Turnover Ratio. Retrieved August 17, 2008, from http://www.investopedia.com/terms/r/receivableturnoverratio.asp
• Keown, A. J., Martin, J. D., Petty, J. W., & Scott Jr., D. F. (2005). Financial Management: Principles and Applications (10th ed.). : Pearson Prentice Hall.
• Sulock, J. M., & Dunkelberg, J. S. (1997). Cases in Financial Management (2nd ed.). : John Wiley & Sons, Inc..

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