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Reece Inc. is a retailer of consumer goods, and it has been experiencing falling sales due to the COVID-19 pandemic on 18 March 2020. The
Reece Inc. is a retailer of consumer goods, and it has been experiencing falling sales due to the COVID-19 pandemic on 18 March 2020. The management has conducted several actions to draw and keep customers through home delivery, internet shopping, providing generous discounts and credit terms to the regulars. Reece Inc. is providing a cash discount of 2.5% to debtors on the condition to repay the receivables within one month. The standard repayment term is three months. The bank would loan Reece Inc. at 18% per annum. The extracts of financial information for the last two years are as follows: Note: Revenue in 2019 was 5,800,000. The directors are worried that the bank overdraft is growing too fast. They are concerned whether Reece Inc. is overtrading and potentially encountering a severe risk of bankruptcy. (b) Use the ratios to comment on the performance and position of the business. [8 marks] (c) Suggest two ways to control the overtrading problem. [5 marks]
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