Essay on Tire City, Inc. Case Discussion

703 Words Apr 20th, 2015 3 Pages
1). The current financial health of Tire City, Inc. can be determined by looking at its financial statements, and converting the information on them into a number of different ratios, which give analysts information about the financial activities/health of the firm. These ratios include (but are not limited to) the current ratio, acid test, profit margin, total asset turnover, and return on equity. The current ratio measures short term solvency, or the firm’s ability to pay off its short term debt. TCI’s current ratio is 2.03, a healthy indication. This means that for every dollar of short term debt the firm carries, it holds $2.03 in current assets. This means that the company is not facing any significant threat from its short term …show more content…
This could be an indication that TCI will continue to add value going into 1998. The debt ratio projected to be 36.5% in the year-end of 1997. TCI also had an increase in free cash flows. From a lenders perspective TCI still has some room to take on more debt and still have the ability to meet obligations. Additional funds needed to support sales in the year-end of 1996 was -$127,000 and -$770,000 in 1997. TCI would need $897,000 to support future sales for 1996 and 1997.

4) The company’s external funding needs would decrease if inventory were not reduced by the end of 1996. This is because if tire city did not decrease inventory they would have more inventory to sell. Having more to sell means an increase in net income and retained earnings. The retained earnings could be used to fund company growth decreasing the dollar amount of external funding needed for the next fiscal year.

5) NWC1996=4,100,000+2,572,000-1,728,000=$4,944,000
NWC1997=4,920,000+3,086,000-2,074,000=$5,932,000
TCI is able to meet the minimum provisions of 4mil for both years.

6). After looking at the forecasts and financial health of TCI, I would feel confident lending TCI the funds they require for their warehouse, as well as to finance their growth. All of their financial statement ratios in 1995 point to a healthy operation that will have enough FCF to repay the loan over the three year life. The forecasts made also support this notion, showing that FCF will

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