Preview

Tire City Case Study

Good Essays
Open Document
Open Document
1149 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Tire City Case Study
Summary of Facts Tire City Inc, a retail distributor of automotive tires, has had a significant increase in sales for the past three years. Sales had grown at a compound annual rate in excess of 20% as a reflection of excellent service and customer satisfaction. In order to keep up with this growth in sales, Tire City has decided to expand its warehouse facilities to accommodate future growth, maintain great service, keep competitive pricing, and to continue yielding high levels of customer satisfaction. Through previous business with MidBank, TCI has established a good line of credit with them. In 1991, TCI took out a loan from MidBank to build a warehouse. This loan was being repaid in equal annual payments of $125,000, leaving a remaining balance of $875,000 at the end of 1995. In order to expand its warehouse facilities and utilize this line of credit, TCI plans to invest $2,400,000 on this expansion; $2,000,000 to be spent during 1996, the remaining to be used in 1997 as needed, fulfilling the company’s anticipated needs for the next several years.
Issues
Due to the fact that Tire City already has an outstanding loan that is still in the process of being paid off, the main issue arises. Already bearing financial obligations towards MidBank, as well as other everyday business obligations, can Tire City afford to expand? If so, how much can be internally financed? How much external financing will Tire City need in the form of a bank loan from MidBank? Lastly, can Tire City reduce their inventory and still function properly?
Analysis
TCI’s future financials look fairly stable for the most part. Using management’s projections, a growing TCI is revealed with great sales growth and stable ratios.1 The management case reveals slight decreases in Current and Quick ratios as well as slight increases in Total Liability to Total Assets and Total Liability to Equity do to the increase in Bank Loans Payable from the forecasted loan for the warehouse.2 Accounts

You May Also Find These Documents Helpful

  • Good Essays

    Cologne Haefren Baum Case

    • 924 Words
    • 4 Pages

    Although the sales of the company have declined significantly their cost of goods sold has remained high, especially between 1994 and 1995 the company had a decline in sales and an increase in cost of goods sold. This is evidence the company is having problems passing costs to its consumers. The company is not very asset intensive and its decrease in total asset turnover can be due to their decrease in sales, however their rather low total asset turnover which is also decreasing from 2.1 to 1.5 shows their assets are not being used very efficiently. As a result of their sales decrease their Fixed Asset turnover also decreased from 7.0 to 5.4. The decrease in sales and increase in competition also means more shelf time for their inventory which has increased from 103 to 129, which makes Haefren Baum’s price cutting strategy questionable. The company is already experiencing a loss of revenue due to their lower prices; however this is not stimulating the number of different sales because the inventory is sitting in the…

    • 924 Words
    • 4 Pages
    Good Essays
  • Satisfactory Essays

    Lawson Case

    • 637 Words
    • 3 Pages

    Lawson is a clothing retailer who has recently met with a bank official asking them for a couple of new services from the bank. The first new service that they have requested is a bank loan that would be used to pay down their trade debt. Their current interest rate on the trade debt is 13.5% and the owner of Lawson, Paul MacKay, feels that he can secure a bank loan that would in turn have a lower interest rate. The second new service that they have requested is a line of credit, the line of credit would be used to help, when the sales are down and cash flow is short. Paul feels that a line of credit will ensure that the store will be able to meet their debt obligation with their main trade supplier.…

    • 637 Words
    • 3 Pages
    Satisfactory Essays
  • Satisfactory Essays

    In order to create an initiative for growth, an analysis of the company 's short term and long term financing needs are assessed to determine strategies for the company to manage working capital. The suggested initiative to increase XYZ Company, Inc. revenue over the next five years is by acquiring assets through a merger with UVW Company to produce more of product X. Companies must be able to manage growth either through the acquisition of assets or through the capital budgeting process. Through the acquisition of assets, external financing will be required. Growing quickly will allow XYZ Company to gain a larger market share and reinforce its viable position in the marketplace. Expanding too rapidly can have consequences. If the company has too much debt-financing and cash flows are reduced the company will risk being unable to repay its debts. Management must ensure the business can grow, what funding may be needed, and determine the sustainable growth rate.…

    • 575 Words
    • 3 Pages
    Satisfactory Essays
  • Satisfactory Essays

    ACC/291 March 25,2012 Liquidity Ratios Current Ratio: Current Assets/Current Liabilities 2005 $14,555,092/ $6,974,752= 2.09:1 2004 $14,643,456/ $6,029,696=2.43:1 Acid Test Ratio: Cash+ Short-Term Investments + Receivables (Net)/ Current Liabilities 2005 $305,563 + $283,583 +$6,133,663/ $6,974,752= .96:1 2004 $357,216 + $133,504 + $5,775,104/ $6,029,696=1.04:1 Receivables Turnover: Net Credit Sales/ Average Net Receivables 2005 $50,823,685/ ($6,133,663 + 5,775,104/2) $50,823,685/ $5,954,384= 8.54 times 2004 $46,044,288/($5,775,104+6,569,344/2) $46,044,288/ $6,172,224=7,46 times Inventory Turnover: Cost of Goods Sold/ Average Inventory 2005 $42,037,624/ ($7,850,970+$7,854,112/2) $42,037,624/$7,852,541=5.35 times 2004 $37,480,050/ ($7,854,112+8,074,880/2) $37,480,050/ $7,964,496=4.71 times Profitability Ratios Current Assets 2004 2005…

    • 1563 Words
    • 7 Pages
    Satisfactory Essays
  • Powerful Essays

    TJX Companies Inc. is currently in one of the most secure subsets of the retail industry. The economy is a factor always present in the minds of consumers today, and the retail establishments operated under TJX Companies all cater towards the price conscience customer. They are hitting all ages and genders in the apparel industry in addition to home good products including furniture and accessories. They have expanded to reach many markets, and are continuing their expansion across the United States and throughout international countries in Europe. Their ability to payout higher dividends than the majority of the competitors in their industry, while still expanding their market segment proves their profitability along with their profit margin. The profit margin experienced by TJX has been increasing rapidly. There perfect placement in the marketplace and their successful current performance proves the strengths which lie with TJX Companies Inc. As of right now, TJX should work on growing their revenue to a higher value. Although the company is increasing in revenue from year to year, they have only jumped 4.3%. A possible weakness right now, the company’s current expansion should turn that around. Even still a stagnant revenue is much better than a declining revenue growth, which in this economy is not uncommon. If their revenue is able to grow, than they can focus on reestablishing their previous inventory method. Due to the economy, TJX restructured their inventory system in order to keep a smaller quantity on hand. With larger revenues and more sales, they will be able to profitably keep larger stocks of merchandising inventory on hand. Financial information is all interconnected, balancing and formulating from each aspect. As the economy turns around, sales increase, and revenues increase, the downfalls which TJX has endured will change into even greater profitable quarters.…

    • 1729 Words
    • 7 Pages
    Powerful Essays
  • Good Essays

    Lawson Case

    • 878 Words
    • 4 Pages

    The first bank loan of $194, 000 was planned to be used to pay off the significant trade debt with his primary supplier, Forsyth Wholesale Ltd (FWL). The second debt of 26, 000 he would then use to assist with his monthly cash shortage. From the excessive amount of $217, 236 trade debts yet to be paid to FWL, Mackay has been paying a tax penalty of 13.5 per cent on $193, 668. Furthermore, in 2003 FWL financed the expansion of Lawsons store size to raise future sales. Hence, this expansion cost a total of $36, 000 and was added to the company’s trade debt. The sole purpose was proved to be indeed helping increase sales volume based on the 2003 sales results. The main question remains at this point, after the analysis of ratios and projected statements, should Lawsons be approved for a loan grant from the bank?…

    • 878 Words
    • 4 Pages
    Good Essays
  • Satisfactory Essays

    Riley Supply Case

    • 426 Words
    • 2 Pages

    Yet, despite the fact that profits were also growing, the company experienced continued cash flow problems. As a result, Riley finds that an increasing amount of his time is being devoted to dealing with the cash flow problems. The company has normally relied on bank loan financing secured by accounts receivable and inventory. However, in 2006 the company was unable to reduce its bank loan during the seasonal slowdown period. Furthermore, the company's manufacturer suppliers were becoming unhappy. Some had even started to demand payment on delivery rather than offer the 2/10, n/30 terms standard in both the manufacturer and wholesaler markets. Riley is not sure what he should do. He expects that 2007 sales will be 30% higher than the prior year and that there will be continued strength in sales in the following years. Furthermore, his co-investor is becoming increasingly bothersome so Riley would like to buy back the 40% ownership in the company that he does not now control.…

    • 426 Words
    • 2 Pages
    Satisfactory Essays
  • Good Essays

    Acc 411 Pinnacle Case 1

    • 1005 Words
    • 5 Pages

    c). Through comparing the current year’s account balance and ratios with those of the preceding year, we summerize Pinnacle business in serveral areas. The gross profit margin which measures the profitability of Pinnacle business indicates that Pinnacle is performing very stable and fairly well. In identifying areas of business risk, we focus on accounts receivable turnover, inventory turnover, and debts to equity. Account receivable turnover has declined significantly, it is a reasonable tool to assess that more sales were credit sales. Increased credit sales are likely to be assessed…

    • 1005 Words
    • 5 Pages
    Good Essays
  • Satisfactory Essays

    Since the 1940’s TMS has been providing small loans to consumers. During that time TMS augmented its business to include the servicing of business loans, business acquisition financing, and commercial real estate loans. In 1946 TMS decided to finance forestry and construction equipment. The decision proved to be very profitable and resulted in TMS’s establishment of Future Growth Inc. (FGI). Consequently FGI also experienced an immense demand for equipment allowing FGI the capability to purchase its own equipment manufacturing company. This allowed FGI to sell, build, and finance its own equipment. For 67 years FGI’s business venture went well (UOP, 2010).…

    • 720 Words
    • 3 Pages
    Satisfactory Essays
  • Better Essays

    ECO 561 TMS

    • 1239 Words
    • 5 Pages

    “Thomas Money Service Inc. (TMS) has been in business since 1940” (University of Phoenix, 2012). The company started out granting small loans for consumer needs and evolved into offering business loans, business acquisition financing, and commercial real estate loans, (University of Phoenix, 2012). TMS expanded into equipment financing in 1946 under the subsidiary of Future Growth Inc. (FGI), (University of Phoenix, 2012). The venture in turn became very lucrative for TMS because of a huge demand in construction and forestry equipment after World War II (University of Phoenix, 2012). In 1951, FGI purchased an equipment manufacturing company building, selling, and financing their own building and forestry equipment and discontinued financing other equipment (University of Phoenix, 2012). For over 67 years it has been profitable and has stated in previous economic downturns that the company never had to lay off any of its workers, (University of Phoenix, 2012). However, in the current recession and after several natural disasters affecting forestry states, FGI profits declined last year by 30%. Home sales also declined, constructions slowed and caused FGI to repossess equipment and sell it at a discounted price. With the changing economic environment and profit loss Thomas Money Services Inc. has requested recommendations to help increase its revenue, determine its profit maximizing quantity, increase product differentiation, increase barriers to…

    • 1239 Words
    • 5 Pages
    Better Essays
  • Good Essays

    Upbeat Inc.

    • 518 Words
    • 3 Pages

    UpBeat, Inc. is a successful company located in Greenville South Carolina. Sales have substantially exceeded budgeted amounts and look to get even better. Upon reviewing of the monthly reporting package and cash flow projections it can be noted that the debt to equity ratio has deteriorated, liquidity is tight, and the company is having difficulty keeping current on taxes and on payments to suppliers and employees. In order to meet UpBeat’s debt covenants the local bank has agreed to purchase $50 million of accounts receivables following provisions included in the sale agreement:…

    • 518 Words
    • 3 Pages
    Good Essays
  • Good Essays

    Mark X Case Answers

    • 1686 Words
    • 7 Pages

    Liquidity ratio. The firm’s liquidity shows a downward trend through time. The current ratio is decreasing because the growth in current liabilities outpaces the growth of current assets. The quick ratio is also declining but not as fast as the current ratio. From 1991 to 1992, it only decreased 0.35 units while the current ratio decreased 0.93 units. Looking at the common size balance sheet, we also see that the percentage of inventory is growing from 33% to 48% indicating Mark X could not convert its inventory to cash.…

    • 1686 Words
    • 7 Pages
    Good Essays
  • Satisfactory Essays

    Mci Case

    • 981 Words
    • 4 Pages

    MCI is going to need significant cash in order to undertake the capital investment plans that will allow it to achieve the 20% market share that it desires. The projections call for capital expenditures ranging from $890 mln in 1984 to $2.76 bln in 1987. With an existing cash position of $542 mln, MCI can cover its capital expenditures requirements for only a year (1984). Thereafter, the financing needs range from $732 mln in 1985 to $1.43 bln in 1987, assuming that access charges do not exceed 29.5% of sales in 1987 before tapering off to about 26.5% of sales in 1990 (Appendix xxx).…

    • 981 Words
    • 4 Pages
    Satisfactory Essays
  • Powerful Essays

    Do you need new tires? Discount Tire is the place for you. The Discount Tire CO was founded in Ann Arbor, Michigan 1960 by Bruce T. Halle and is known to be one of the largest wheel retailers today (Mackay, 2012). The condition of your tires is very crucial to every aspect of your driving ability. When your tires begin to bald you are at a serious risk for yourself and everyone around you. However discount tire does not just change tires, they also provide services such as air checks, tire repairs, and new tire or wheel purchases for all vehicles. The upside to being a person that sells tires is that your audience is everyone that owns a car, and that's a lot of people. They are one of the only tire companies that does not produce and sell their own brand of tire. However they do have sponsored and featured companies that provide tires for strictly discount tires (Mackay, 2012).…

    • 1705 Words
    • 7 Pages
    Powerful Essays
  • Best Essays

    Northumbrian Water Group plc. (“NWG” or “the Group”) is an independent company quoted on the FTSE 250 Index of the London Stock Exchange. The Group principally works in the provision of water and waste water services. It provides water and sewerage services in the north east of England and water services in the south east. The year-end of NWG is 31 March and the results for 2011 show a turnover of £738.1 million (2010:£704.7 million), producing profit £178.4 million (2010:122.9 million). Its EPS is 34.44 pence (2010:23.67 pence) and its share price is 283 pence with a P/E ratio of 13.0. Comparing with the Utilities sector, NWG is a medium company with a market capitalization of £1720.3 million.…

    • 3656 Words
    • 15 Pages
    Best Essays