1. What ratios do you think are important to calculate in order to make recommendations and or changes in strategy? Make sure to list the ratio and explain what the ratio describes.

Spencers Outfitters: All Kinds of Clothing for All Kinds of People

As described in the introduction of the Spencers Outfitters case, there are many issues with the company as it learns to adapt to the changes and your team is busily working on business strategies to address these issues. Having completed Chapter 8 on Accounting and Chapters 9 and 10 on Finance, review the case preliminary information provided here and answer the questions below.

Sales: The sales curve of the division has started to flatten. Sales grew 27 percent in the five-year period prior to our purchase and only 14 percent in the last two years. This partly reflects heightened competition in the area.

Profits: Profits have been declining and are now in the lowest 20 percent of the industry. Last year the operation approached the break-even point. There are serious questions as to how to handle pricing.

Warehouse: The warehouse is the oldest in the company, and it is inefficient. It is a multistory building, which requires a great deal of elevator trips to fill any order. It is also 20 percent below the recommended size for the volume of business it handles. It would take $2 million to replace it.

Finance/Accounting: The accounting department is only now adjusting to our accounting policies. The division is solvent, but with declining profitability. Without an addition of funds to purchase new computers and software soon, the ability for them to come on-line with our accounting system will be totally impossible. They are utilizing book and hold; assets are in excess of liabilities. But, with declining sales there is a lower cash flow. Payroll has not been cut; thus, the net income is lower.