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Tire City Inc Essay

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Tire City, Inc. (TCI) is a rising distributor of automotive tires in northeastern United States. Their distribution centers arelocated throughout eastern Massachusetts. Their tires are sold as on-demand bases with chain of 10 shops located all throughout eastern Massachusetts with a central warehouse outside Massachusetts. Due to this proximity of warehouse, TCI stores enjoyed just-in-time delivery with only 24 hours of lag time. Tire City, Inc. sales have grown at compounded annual rate in excess of 20%, in past three years. And TCI’s Chief Financial Officer, Mr. Jack Martin predicts this consistency in sales growth going forward. Therefore, to accommodate the future growth Mr. Martin has decided to expand its warehouse facilities.…show more content…
All the leverage ratios have a downward trend which again indicates that the company has less risk. The TIE ratio shows a good upward trend indicating that the company has sufficient cash flows to make interest payments. Most of the asset management ratios also show a good trend. The cash conversion cycle shows an overall good trend indicating the good short-term health of the company. Most of the profitability ratios either show a good upward trend or are quiet stable compared to 1993 indicating that the company is utilizing its resources properly. There are few ratios which show a slight bad trend, but the overall the company is performing good and stable in 1995. Solution 2 a. There are several methodologies that can be employed to forecast future financial statement; however, for the purpose Tire City, Inc.’s future expansion plan the methodologies used is percentage of sales technique with statistical tool. The Percentage of Sales Method is based on the premise that most accounts vary based on sales; that is they are correlation with the increase or decrease in sales. This result in evaluation of firms external financing need. b. Please see attached Appendix II c. Please see attached Appendix III d. As calculated in Appendix II & III, the external financial need for TCI $453,000 in 1996 and $680,000 in 1997. Solution 3 At the end of 1997, based on their liquidity TCI is in same condition as it was in 1995;
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