Premium Essay



Submitted By waterbottle
Words 323
Pages 2
Current Financial Health of Tire City Inc. Tire City, Inc. has been generating a stable profit during the period of 1993-1995. Sales income increased on average of 20% every year. Consistent profit margin of 5% and ROA of 12-13% have also contributed to the strong profitability of the company for the past three years.
Along with the company’s growth in profitability, fixed asset turnover increased from 8.56 in 1993 to 8.93 in 1994, and to 9.65 in 1995, which facilitated the company to improve its assets turnover ratio, from 2.47 in 1993 to 2.60 in 1994, and to 2.62 in 1995. This indicates that the company has been managing its fixed assets very efficiently that it improved the total asset management as well. During 1994-1995 there were slight decreases in accounts receivables turnover and in inventory turnover, but they are both explained by the small increases in collection period and in inventory period, respectively. In terms of financial leverage performance, Tire City has reduced its debt ratio every year from .50 in 1993 to .48 in 1994, and to .44 in 1995, decreasing its risk and increasing its solvency. Long-term debt-to-equity ratio also has diminished significantly from .31 in 1993 to .22 in 1994, and to .15 in 1995. This shows that Tire City is in a favorable position to lend more capital in the future for its warehouse expansion. Tire City has constantly been producing increasing amount of cash every year -- from $508,000 in 1993 to $609,000 in 1994, and to $706,000 in 1995. During 1993-1995, the company have met current ratios above 1.90 and quick ratios around 1.3 each year and showed that they have been able to meet their short-term liabilities without the help of outside financing. Overall, as of 1995, Tire City, Inc. is in a good financial

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