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Questions for Tire City, Inc. case
The case write-up (based on the questions below) is due at the class beginning on
September 12, 2012. Each team submits one typed write-up. If you need to make
additional assumptions, please
state them clearly in the write-up.
1. Evaluate Tire Citys financial health. How well is the company performing?
2. Based on Mr. Martins prediction for 1996 sales of $28,206,000, and for 1997 sales of
$33,847,000, and relying on the other assumptions provided in the Tire City case, prepare
complete pro forma forecasts of TCIs 1996 and 1997 income statement and year-end
balance sheets. As a preliminary assumption, assume any new financing required will be in
the form of bank debt. Assume all debt (i.e., existing debt and any new bank debt bears
interest at the same rate of 10%).
3. Using your set of pro forma forecasts, assess the future financial health of Tire City as of
the end of 1997. Will Tire City be in a stronger or weaker financial condition two years
from now?
4. As a lender, would you be willing to loan TCI the funds needed to expand its warehouse
facilities and finance its growth? Why or why not?
Introduction
Tire City, Inc. was a growing retailer distributor of automotive tires in the northeastern
United States with a reputation for excellent service and competitive pricing, which
yielded high levels of customer satisfaction.1 Jack Martin, Chief Financial Officer, was
preparing to request a five-year loan to finance the expansion of the warehouse facilities as
well as the anticipated continued rapid growth of the firm.
Using the financial statements provided, an evaluation of the current financial health of
TCI was conducted using the four common financial ratio groups, Liquidity, Financial
Leverage/Solvency, Asset Management, and Profitability. Tire City does not appear to be
experiencing cash flow problems and the liquidity of the firm has been relatively stable
over the years in which financial information was provided. TCI has also reduced their
financial leverage as well as increased asset turnover and profit margins in recent years.
Utilizing the projected sales figures for 1996 and 1997, pro forma income statements and
balance sheets were prepared. These prepared financial statements were utilized to conduct
an assessment of the future financial condition of TCI for 1996 and 1997. The same
financial ratios were used in this evaluation of financial condition as the first evaluation.
Lastly, a recommendation is provided on whether or not to loan TCI the requested funds to
expand the current facilities and finance its anticipated growth.
