Tire City Inc Essay

Financial statements paint a picture of financial health of an organization. Important aspects of the financial statement of a health care organization are ratios. Analysis of ratios show how two numbers relate or compare to one another. Ratios are a way for organizations to make comparison. These comparisons not only encompass what is happening presently but can also be used to make comparisons about numbers and ratios over time. Ratios are a way for organizations to compare themselves with competitors and the industry. (Finkler, Kovner, and Jones, 2007). There are four major ratios that financial statements analyze 1) liquidity 2) activity 3) leverage and 4) profitability. The financial statement for Mayo Health System

• Present 5 years of statements – Ratio – Trend Analysis – See if ratios are improving

First of which, is the current ratio. It has been rapidly declining since 2000. To me this indicates that there is a liquidity issue. Each year their trade debt increase exceeds the increase of net income for the company. As a result, the working capital has taken a nosedive from $58,650 in 2002 to only $5,466 in 2003.

At the same time, since PP&E increased, D,D &A had a same trend. As for Working Capital, As Current assets rose more than Current liabilities. The number increased. Also, Net Free Cash Flow cannot be ignored because it showed negative number in 1995, and NFCF is a crucial component to calculate stock price.

When combining the figures for ROE, ROA and the DuPont analysis it appears that the company is using leverage favourably. ROE is greater than ROA and assets are greater than equity. This is a positive sign for shareholders as it suggests a good investment return in a company that is managing its shareholder equity well (Evans & McDowell, 2009).

Return on Total Assets was 4.43% which is below five percent. That indicates that the company is not accurately converting its assets into profit. The total for Return on Stockholders’ Equity was 8.89%, however financial analysts prefer ROE to range between 15-20 %. The company’s low ROE indicates that the company is not generating profit with new investments. Lastly, Debt-to-Equity ratio for the company was 1.01 which indicates that investors and creditors are equally sharing assets. In the view of creditors, they see a high ratio as a risk factor because it can indicate that investors are not investing due to the company’s overall performance. The totals of these three ratios demonstrate that the company’s financial state is not as healthy as it should be.

Overall regards to liquidity ratios, the higher the number the better; however, a too high also indicates that the firms were not using their resources to their full potential. Current ratio of 1.0 or greater shows that a company can pay its current liabilities with its current assets. JWN’s ratio increased from 2.06 in 2007 to 2.57 in 2010, and slightly decreased to 2.16 in 2011. JWN’s cash ratio increased significantly from 22% in 2007 to 80% in 2010. JWN has a cash ratio of 73% in 2011, which is useful to creditors when deciding how much debt they would be willing to extend to JWN. In addition, JWN also has moderate CFO ratio of 46%, indicating the companies’ ability to pay off their short term liabilities with their operating cash

By modifying the transportation route, the trucks were able to get the product inventory to intended destinations somewhat faster which was another factor in the stores stabilizing product inventory on location.

The company’s debt ratios are 54.5% in 1988, 58.69% in 1989, 62.7% in 1990, and 67.37% in 1991. What this means is that the company is increasing its financial risk by taking on more leverage. The company has been taking an extensive amount of purchasing over the past couple of years, which could be the reason as to why net income has not grown much beyond several thousands of dollars. One could argue that the company is trying to expand its inventory to help accumulate future sales. But another problem is that the company’s

Also, according to its leverage ratios, the company’s debts are not only very high, but are also increasing. Its decreasing TIE ratio indicates that its capability to pay interests is decreasing. The company’s efficiency ratios indicate that despite the fact that its fixed assets are increasingly being utilized to generate sales during the years 1990-1991 as indicated by its increasing fixed asset turnover ratio, the decreasing total assets turnover indicate that overall the company’s total assets are not efficiently being put to use. Thus, as a whole its asset management is becoming less efficient. Last but not the least, based on its profitability ratios, the company’s ability to make profit is decreasing.

Locating a central distribution center will increase the control over inventory for Consolidated. Having small point of operations will reduce the amount of inventory that will be maintained at the sites. Each location will have different needs and only stocking the immediate customer needs at each location will reduce overall costs. The purchasing discount will be easier to maintain if all shipments come to one location which will also save the company money. Having a couple small vans deliver to regional locations within an hour is less costly than ordering extra just to meet the minimum purchase discount. The cost of shipping to small locations will be minimal and will save the company and customers money in the long term. If the contractors know of items that they will need for a job they can inform Consolidated and the special items can be delivered to the job site or picked up at the regional office. Communication is key and willing to provide the best service in a timely manner will reduce cost and increase profit.

Next is Asset turnover with .55 times which is a measure of the efficiency of asset utilization. Finally the equity multiplier with 2.26 which is a measure of financial leverage of the firm. When compared to the traditional ratios we get similar results; Profit margin 25.44% (27% DuPont) versus 18.75% industry average. Asset turnover is .54 (.55 DuPont) versus .50 industry average. Equity multiplier 2.28 times (2.26 times DuPont) versus 2 times industry average. The results show that the DuPont analysis using ROE as the main determinant are very similar to the regular ratios. Furthermore the ROE of the traditional ratio is 31.32% with DuPont being 33.10% versus the industry average of 18.75% shows that the firms ROE is very robust. While the firm has some challenges with respect to liquidity and inventory management, as well as debt management it still is doing a good job with respect to its shareholders. However it could be doing a little better for the stockholders, and needs to address some of the above issues mentioned.

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

 Good distribution concepts with no one store more than 6 hrs. away from warehouse.

Tire City, Inc is a growing distributor of tires in the Northeastern part of the United States. Tire City, Inc is positioned in eastern Massachusetts, southern New Hampshire and northern Connecticut. Tire City, Inc distributes its product through a chain of 10 stores and a central warehouse outside Worcester, Massachusetts. In the past three years, Tire City has grown at an annual compound rate of 20% which was attributed to its excellent reputation for service and competitive pricing. Due to its growth, Tire City is currently at maximum capacity in its warehouse and is considering expanding its current warehouse facility to accommodate service levels. Jack Martin and Abeer Mandil are in the process of