Tire City Case Study

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*1994→ 2.71

*1995→ 2.79

quick ratio (CA less inventory/CL)

*1993→ 1.32

*1994→ 1.29

*1995→ 1.35

debt-to-equity (total L/total SE)

*1993→ 2.01

*1994→ 1.92

*1995→ 1.79

asset turnover (sales/total assets)

*1993→ 2.47 (148 days)

*1994→ 2.20 (140 days)

*1995→ 2.62 (139 days)

inventory turnover (COGS/inventory)

*1993→ 5.79 (63 days)

*1994→ 6.47 (56 days)

*1995→ 6.22 (59 days)

Over the next 18 months, TCI is investing $2.4 million. Taking out a loan to help fund this is financially wiser than taking all of that money straight out of NI, which is money necessary for running the business while expanding (make sure to have proper balance of operating, investing, and financing). On the loan, 10% interest seems high. As for the borrowing, the as-needed basis seems like a bright idea as they will never take too much/too little. Obviously it is not ideal to have more LT debt, but in the short term it will make financing the expansion easier. (Do rates come into play?). Things to watch out for are recessions, defaulting.

They are going through a period of expansion (hence the loans) and growth (hence the increase in sales, etc.). Based on the ratios, the company is financially doing well. It’s debt to equity ratio shows the company has taken on a moderate amount of risk, but that risk seems to be paying off. The one ratio that worried me was the profit ratio hovering around 5%. The volume they are doing for the size of their business is good, but that margin seems low. Also the growing proportion between GP and NI is concerning. Inventory turnover levels were good, but it slowed down in 1995. This could possibly be due to upcoming warehouse expansion.

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Assess the Total Business

-sales

*growing, declining, flat?

-profit margin

*growing, declining, flat?

-inventory and asset velocity

-ROA

*R = M x V for 2015→ 13.36%