Forecasting Pro Forma Financial statements Tire City Inc Forecasting Pro Forma Financial statements Tire City Inc. Gintė Mockienė, VUEF, Finance 2017 October 3rd

Company background Tire City Inc. was rapidly growing distributor of automotive tires Operating in northeastern United States Having 10 shop The main amount of TCI‘s inventory was central warehouse Stores was easily serviced by this warehouse within 24 hours 2017 October 3rd VU Ekonomikos fakultetas

Company background Reputation for excellent service and competitive pricing yielded high level of customer satisfaction and sales growth. *Numbers are given in thousand of dollars 2017 October 3rd VU Ekonomikos fakultetas

Company background In 1991, TCI took a loan from MidBank to build a warehouse Loan was being repaid in equal annual payments of $125 000 At the end of 1995, the balance due on the loan was $875 000 2017 October 3rd VU Ekonomikos fakultetas

Task Chief Financial Officer of Tire City, Inc. Jack Martin should prepare for a meeting with company‘s bank Mr. Martin should present proforma financial statements for a bank for 1996 and 1997 Mr. Martin intended to present a request of five-year loan for expansion of the comany‘s warehouse facilities 2017 October 3rd VU Ekonomikos fakultetas

Task During next 18 months TCI planed to invest $2 400 000 to its expansion $2 000 000 will be spent during 1996 $400 000 will be spent during 1997 This investment will fulfill the company’s anticipated needs for several years The loan will be repaid in four equal annual installment starting from 1998. 2017 October 3rd VU Ekonomikos fakultetas

Questions What can we say about Tire City, Inc. financial health? Should company invest in expansion of warehouse? Can company expect to get a loan for expansion of warehouse? 2017 October 3rd VU Ekonomikos fakultetas

Financial statements – Income statement *Numbers are given in thousand of dollars 2017 October 3rd VU Ekonomikos fakultetas

Financial statements – Balance sheet *Numbers are given in thousand of dollars 2017 October 3rd VU Ekonomikos fakultetas

Financial statements – Balance sheet *Numbers are given in thousand of dollars 2017 October 3rd VU Ekonomikos fakultetas

Ratio analysis 2017 October 3rd VU Ekonomikos fakultetas

Ratio analysis 2017 October 3rd VU Ekonomikos fakultetas

Financial health – 1993-1995 Sales increased by 44.82%. From $16 230 000 in 1993 to $23 505 000 in 1995 Net income increased by 52.56%. From $780 000 in 1993 to $1 190 000 in 1995 Profit margin increased by 0.25%. From 4.81% in 1993 to 5.06% in 1995 Current and quick ratios are over 1 – means that company is healthy (current liabilities are well covered by current assets) 2017 October 3rd VU Ekonomikos fakultetas

Financial health – 1993-1995 Total asset turnover – 2.617. Health company’s performance because TCI makes 2.617$ for each 1$ in its total assets Day’s in inventory – 106.994 days. All ratios are consistent 2017 October 3rd VU Ekonomikos fakultetas

Conclusion - TCI in 1993-1995 period was financially healthy Financial health – 1993-1995 Conclusion - TCI in 1993-1995 period was financially healthy 2017 October 3rd VU Ekonomikos fakultetas

Questions What can we say about Tire City, Inc. financial health? Should company invest in expansion of warehouse? Can company expect to get a loan for expansion of warehouse? 2017 October 3rd VU Ekonomikos fakultetas

Ratio analysis Expected growth rate is higher then internal growth rate. It means that TCI has external financial need. They will be able to accept expected growth rate without increasing its financial leverage 2017 October 3rd VU Ekonomikos fakultetas

Questions What can we say about Tire City, Inc. financial health? Should company invest in expansion of warehouse? Can company expect to get a loan for expansion of warehouse? 2017 October 3rd VU Ekonomikos fakultetas

Proforma financial statements 1996-1997 *Numbers are given in thousand of dollars 2017 October 3rd VU Ekonomikos fakultetas

Proforma financial statements 1996-1997 *Numbers are given in thousand of dollars 2017 October 3rd VU Ekonomikos fakultetas

Proforma financial statements 1996-1997 *Numbers are given in thousand of dollars 2017 October 3rd VU Ekonomikos fakultetas

Ratio analysis 1996-1997 2017 October 3rd VU Ekonomikos fakultetas

Ratio analysis 1996-1997 2017 October 3rd VU Ekonomikos fakultetas

Conclusions Tire City, Inc. is strong financially Consistent proforma ratios Sales will not decrease during expansion of warehouse when inventory was noticeable lower in 1996 Ratios in financial leverage will decrease in 1998 when company will start to pay loan. However sales should increase even more because of opportunities of newly expanded warehouse. 2017 October 3rd VU Ekonomikos fakultetas

Answers What can we say about Tire City, Inc. financial health? Company is and according proforma statements should be financial healthy in 1993-1997 Should company invest in expansion of warehouse? Yes Will bank give a loan for expansion of warehouse? Yes, company will be able to pay loan in 4 years 2017 October 3rd VU Ekonomikos fakultetas