Tire City Case Analysis

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Executive Summary
Tire City, Inc. has petitioned MidBank for a loan in order to expand their business, and build a new warehouse. Through the financial statement reporting and the numbers that have been presented to me, I believe that this is a sound investment. The growth percentage of 20 percent per year is conceivable, if business stays as it currently is. The amount of debt that would need to be financed for this expansion is palatable, and well within the normal ranges for these sort of projects. Moreover, the company has very solid net working capital and leverage ratios. All of these factors lead me to believe that this will be a profitable investment for the bank. The one issue that I had was in 1996 when Tire City capped their
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Analyzing Tire City, Inc.’s Future Financial Health

Tire City, from the projections, seems to be headed in the correct direction. In the fiscal year 1996, even with increasing debt by 351 thousand dollars, Tire City turned a profit. The expansionary vision that has been given seems to project to more revenue, which increases from 23,505 to 28,206, and a healthy growth rate that can be viewed as sustainable. One precaution to this is the anomaly that takes place in the inventory in 1996. This should be monitored closely and inquired about the reasoning of capping the inventory at 1625 for that year. The total assets of the company is still greater than the liabilities, which leads me to believe that they are structured correctly and have taken the necessary precautions in their capital structure.

Impact on External Funding – 1996

Inventory Variable
If the inventory variable is independent, then we see that as the inventory goes up, the bank debt follows suit. This could be because the firm cannot finance extra inventory, or it could be that they have no capacity to store that inventory.

Accrued Expenses Variable
When assuming that Accrued Expenses grows less than anticipated, we see that bank debt has an inverse relationship. This could be because of many factors, but my main suspicion is that the company utilizes this expense as a sort of short term financing. Accrued Expenses are

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