Tire City Case Study

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Tire City, Inc. (TCI) was a rapidly growing retail distributor of automotive tires in Northeastern United States. Tires were sold through a chain of 10 shops located throughout Eastern Massachusetts, Southern New Hampshire and Northern Connecticut. These stores kept sufficient inventory on hand to service immediate customer demand, but the bulk of Tire City's inventory was managed at a central warehouse outside Worcester, Massachusetts. Individual stores could be easily serviced by this warehouse, which could usually fill orders from individual stores within 24 hours. TSI showed solid results for the year ended in December, 1995; TCI had sales of USD23.51m and net income of USD1.19m. During the previous three years, sales had grown at a…show more content…
Activity ratios are used to measure the relative efficiency of a firm based on its use of its assets, leverage or other balance sheet items. These ratios are important in determining whether a company's management is doing a good enough job of generating revenues, cash, etc. from its resources. | | 1993 | 1994 | 1995 | Activity Ratios | | | | | Asset Turnover | 2.47 | 2.60 | 2.62 | | Days of Receivables | 57.24 | 55.50 | 56.71 | | Days of Inventory | 63.09 | 56.39 | 58.72 | | Days of Payables | | 39.95 | 37.64 | Solid figures for FY1995 are again a positive sign for a progressing performance indicating TCI’s ability to generate revenues given its assets and resources which stems from successful and efficient operations and management. Analyzing the company’s performance compared to its historical figures is always useful; nevertheless, these historical figures can be also a very useful tool to forecast future ProForma figures. We usually start by forecasting future sales (based on an average increase in sales figure) and other balance sheet and income statement items are forecasted as percentage of sales, this percent is normally consistent from historically figures. A close look should be given to the company’s operations and plan for the coming year while making our assumptions and forecasted figures. Normally we should follow

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