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

2. 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

3. 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

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

5. 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

6. Task
During next 18 months TCI planed to invest $ to its expansion
$ will be spent during 1996
$ 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

7. 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

8. Financial statements – Income statement
*Numbers are given in thousand of dollars
2017 October 3rd
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9. Financial statements – Balance sheet
*Numbers are given in thousand of dollars
2017 October 3rd
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10. Financial statements – Balance sheet
*Numbers are given in thousand of dollars
2017 October 3rd
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11. Ratio analysis
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12. Ratio analysis
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13. Financial health –
Sales increased by 44.82%. From $ in 1993 to $ in 1995
Net income increased by 52.56%. From $ in 1993 to $ 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

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

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

16. 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

17. 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

18. 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

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

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

22. Ratio analysis
2017 October 3rd
VU Ekonomikos fakultetas

23. Ratio analysis
2017 October 3rd
VU Ekonomikos fakultetas

24. 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

25. Answers What can we say about Tire City, Inc. financial health?
Company is and according proforma statements should be financial healthy in
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