Backg

Introduction

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 …show more content…

Tire City’s profit margin increased from 4.90% in 1994 to 5.06% in 1995. This is due to the decrease of both COGS and interest expense as a percentage of sales and the increase of sales. Also, gross profit margin has improved from 41.55% in 1994 to 42.09% in 1995. Tire City’s ROA has increased too from 12.75% in 1994 to 13.25% in 1995. While the ROE has decreased slightly from 24.53% in 1994 to 23.73% in 1995.

2- Pro forma Blanca sheet & Income statement for 1996 -1997

We used percentage of sales methodology to forecast the pro forma. The assumptions we used are based on growth of 20% for the sales and the historical average of sales percentage for the years 1993 to 1995. After calculating the pro forma as shown in the appendix the external financing needed (bank debt) for 1996 -1997 will be total of
$ 1,393,000. In 1996 it will be $ 354,800 and in 1997 will be $1,038,260. (See the appendix)

3-Tire City, Inc. Financial Health for 1997

Liquidity

|Liquidity Ratios |1995 |1997 |
|Current ratio |2.03 |1.66 |
|Quick ratio |1.35 |1.10 |
|Cash ratio |0.22 |0.92 |
|Working capital ratio |0.37 |0.27 |