Tire City Case

Topics: Financial ratios, Debt, Financial ratio Pages: 1 (301 words) Published: April 21, 2013
Tire City, Inc. Analysis
As a lender, I would have no problem giving a loan to Tire City, Inc to help finance their growth for the following reasons. The first thing that is apparent is the annual revenue growth. It is expected to steadily increase by 5% in the coming years. This means that Tire City has strong operating cash flows to fund its day-to-day operations. Additionally, Tire City, Inc has improved in total asset turnover over the years, suggesting that they are indeed growing their revenue in proportion to sales. Also, their net margin, gross margin, and return on equity have stayed constant over the years. It is good that there has been no significant decrease in these ratios. Furthermore, their noteworthy sales growth from ’93-’97 suggests they are finding ways to bring in more money such as increasing their prices. Another thing to be considered is the inventory turnover and payables period. It could be a concern that the inventory turnover period is at almost 60 days; however, the payables period has been decreasing over the past few years, which means that Tire City is able to pay off some of their debt to creditors more frequently. Also, the company’s current ratio has been improving with only a slight drop in 1996. This proves the company has liquidity and is having no problem generating cash. Plus, it is apparent that the company has more assets than equity as the years move forward, meaning that they are trying to lower their financial leverage and their level of risk as they continue to grow. All things considered, I would be comfortable loaning funds to Tire City, Inc to finance their growth for it seems they have the resources necessary to pay back this loan in the future.
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