Tire City Inc.

In: Business and Management

Submitted By inthegarage
Words 1781
Pages 8
Current Financial Health Profitability Tire City has shown strong sales growth from 1993-1995. Sales increased 25.42% in 1994, and 15.48% in 1995 respectively. They have improved their profit margin in every year, 1993 had a profit margin of 4.81%, 1994 4.90%, while 1995 has improved to 5.06%. Contributing to this improving margin was a decrease in Cost of Goods Sold as a % of sales, and interest expense as a % of sales. Tire City’s gross profit margin has improved slightly through the years, 1994 saw 41.55% while 1995 saw 42.05% suggesting that Tire City may be charging slightly higher prices or have found cheaper suppliers of tires. Interest expense as a % of sales has decreased due to how they are paying off their original warehouse loan in $125,000 increments. Asset Turnover Assisting the improving profit margin Tire City has seen an improved asset turnover ratio. It has increased every year from 2.47x in 1993, 2.60x in 1994, and 2.62x in 1995. The main improvement for this increase is fixed asset turnover, which improved in 1995 to 9.65x, from 8.93x in 1994. The increase is a result of decreasing planet & equipment as a % of sales. One can conclude that the company purchased a little more plant & equipment; however sales increased significantly thereby increasing fixed asset turnover. A slightly offsetting factor was A/R turnover, it has decreased slightly from 6.58x in 1994, to 6.44x times in 1995. This is due to a longer collection time, which has rose from 55.5 days in 1994, to 56.7 days in 1995. Tire City’s inventory turnover has also slightly declined, from 6.47 in 1994, to 6.22 in 1995. This is due to a higher inventory period, in 1994 inventory was sold off in 56.4 days, in 1995 this has slightly increased to 58.7 days. This is a result of a higher inventory as a % of sales in 1995 compared to 1994, in 94’ inventories were 9.03% of sales, in…...

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