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…
Similarly, their Long-term debt ratio and debt-to-equity has also decrease as they take upon more debt and issue less shareholders equity. TCI has funded it new warehouse projected solely thru bank loan and more debt, where as they could also generate funds by issuing more stocks thereby balancing out the ratio. Similarly, their payable turnover ratio has fallen indicating that TCI is taking longer to pay off its suppliers than it in 1995. The inventory turnover and acct receivable turnover remains constant from 1995 to 1997 as the inventory rose up again after the cut back in 1996. 1997 1995 Current ratio 2.06 2.03
Quick ratio 1.37 1.35
Working Capital ratio 0.35 0.37
Cash ratio 0.22 0.22
Debt ratio 45% 44%
TIE coverage 15.219955 23.5
L.T. Debt ratio 0.18 0.13
Debt-to-Equity 0.83 0.79
Inv turn (cost) 6.22 6.22
Receivable turn 6.4361993 6.4362
Payable turn 16.322917 9.45278
Profit margin 4.9% 5.1%
Gross PM 42.09% 42.09%

Summary & Conclusion
Tire City, Inc. is well established tire company in Massachusetts. It has had constant compounded annual growth of 20% in sales and has a well-developed credit line with Mid Bank. To foster future growth, CFO has decided to cut down holding inventories for one year while keeping everything else constant. Furthermore, it plans to loan $ 2.4 Million from Mid Bank at 10% on as-needed basis.
After doing pro forma statement, ratio, and sensitivity analysis, we, as