Executive Summary
Tire City, Inc. has petitioned MidBank for a loan in order to expand their business, and build a new warehouse. Through the financial statement reporting and the numbers that have been presented to me, I believe that this is a sound investment. The growth percentage of 20 percent per year is conceivable, if business stays as it currently is. The amount of debt that would need to be financed for this expansion is palatable, and well within the normal ranges for these sort of projects. Moreover, the company has very solid net working capital and leverage ratios. All of these factors lead me to believe that this will be a profitable investment for the bank. The one issue that I had was in 1996 when Tire City capped their
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Analyzing Tire City, Inc.’s Future Financial Health
Tire City, from the projections, seems to be headed in the correct direction. In the fiscal year 1996, even with increasing debt by 351 thousand dollars, Tire City turned a profit. The expansionary vision that has been given seems to project to more revenue, which increases from 23,505 to 28,206, and a healthy growth rate that can be viewed as sustainable. One precaution to this is the anomaly that takes place in the inventory in 1996. This should be monitored closely and inquired about the reasoning of capping the inventory at 1625 for that year. The total assets of the company is still greater than the liabilities, which leads me to believe that they are structured correctly and have taken the necessary precautions in their capital structure.
Impact on External Funding – 1996
Inventory Variable
If the inventory variable is independent, then we see that as the inventory goes up, the bank debt follows suit. This could be because the firm cannot finance extra inventory, or it could be that they have no capacity to store that inventory.
Accrued Expenses Variable
When assuming that Accrued Expenses grows less than anticipated, we see that bank debt has an inverse relationship. This could be because of many factors, but my main suspicion is that the company utilizes this expense as a sort of short term financing. Accrued Expenses are
The U.S. Bank loan approval board recommends that U.S. bank allocate the $6.5 million dollar loan to Redhook. Redhook has been a valued customer of the bank for a couple years now never faulting on any payments. Due to the fact that they have missed past payments and by looking at the past financial performance of the company shows that they have capability to
Investing and Financing. Firms must finance inventory, usually with a combination of supplier and bank financing. The risk of inventory obsolescence is somewhat high if the product offerings in a particular season do not sell. Firms tend to rent retail space in shopping malls, so they need to engage in extensive long-term borrowing.
As financial advisor I would urge Mr Wilson to take the loan, despite the fact of low liquidity and increase in debt throughout the last years. The loan from Suburban National bank is not sufficient for meeting the needs of Mr Wilsons company, furthermore, the debt continues to rise due to the buy-out of Mr Holtz; this also has increased the low liquidity of the company. However, the reasons why I would recommend taking the loan are:
Financial performance can be calculated using change in net assets, interperiod equity, sales tax growth, BTA self-sufficiency, and debt service coverage. I will analyze all of these financial indicators further for the City of Smithville with the exception of sales tax growth due to the lack of information necessary to reproduce this calculation.
These number will be used for predicting future financial statements later in this case study.
Going in the opposite direction were two liabilities. Long term debt went down from $1.91 billion during 2004FY to $1.57 billion in 2005FY while accrued expenses dropped from $1.67 billion to $1.52 billion over the same period.
As Bailey (2015) states, “A high level of inventory ties up a company’s funds and also risks becoming
The reason why Butler Lumber Co. is considering finding a different line of credit is because they’ve nearly exhausted all their usable credit with Suburban National Bank, using up $247,000 of the $250,000 of the credit limit. To compile this issue, the bank is wishing to secure the loan with some of Butler’s property. Considering the company’s large debt ratios, they have decided to check with Northrop National Bank’s offer to extend their line of credit by $215,000.
b) Why does a business that has profit $30,000 per year need a bank loan?
Tire City, Inc. (TCI) was a rapidly growing retail distributor of automotive tires in Northeastern United States. Tires were sold through a chain of 10 shops located throughout Eastern Massachusetts, Southern New Hampshire and Northern Connecticut. These stores kept sufficient inventory on hand to service immediate customer demand, but the bulk of Tire City's inventory was managed at a central warehouse outside Worcester, Massachusetts. Individual stores could be easily serviced by this warehouse, which could usually fill orders from individual stores within 24 hours. TSI showed solid results for the year ended in December, 1995; TCI had sales of USD23.51m and net income of USD1.19m. During the previous three years, sales had grown at a
Tire City Inc has increased its debt ratio from 44.17% in 1995 to 44.10% in 1997 by planning to take the bank loan for the additional fund needed. Also, Tire City time interest earned coverage increased from 23.50 in 1995 to 28.25 in 1997. L.T Debt decreased slightly in 1997 than 1995 due to the decrease in the long term debt from $750,000 in 1995 to $500,000 in 1997. Debut to equity ratio has increased slightly from 0.79 in 1995 to 0.82 in 1997.
In the late 1990’s and early 2000’s several accidents were reported of Ford Explorers equipped with Firestone tires rolling over as a consequence of tires’ failures. By the end of 2000 the death toll was estimated at more than 250, and some
Zipcar is expanding rapidly since it was established in 2000. According to its latest 8-k form, for the 2012 first quarter, revenue increased 20% to $59.1 million compared to $49.1 million in the prior year period. Revenue growth resulted primarily from a 23% year-over-year increase in membership to more than 709,000 members at quarter end. But does it really have a sustainable growth to support its expanding and operation? We implement a rough accounting and financial analysis to evaluate its performance and forecast its future.
The margins are not great for this industry, and BLC is no exception. Even with the excellent year over year growth in revenues for this company, BLC is on pace for another dismal year of net income in the high $40k. The net income for this company has been constant; $31k in 1988, $34k in 1989, $44k in 1990, and an estimated $49k in 1991. Net income of this size should not warrant extending a line of credit to this company. As the banker, I would not grant a LOC or any other type of loan this size. I would consider granting this company a smaller LOC with the similar stipulations of maintaining an appropriate working capital amount, fixed asset purchases would need bank approval and that Butler would put up personal property and his insurance policy as collateral for the loans that the business
Inventory is usually never the direct responsibility of the finance department. They have more of an oversight or policing responsibility for the management of inventory. Inventory is more the responsibility of functional areas of manufacturing or operations. The executives in those areas are the ones who set the levels and how the inventory is to be managed. From there, is the levels get too high, the finance department steps in and calls attention to the problem and points out that the problem might be that it could be managed more efficiently.