Tire City

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Exhibit 1 Financial Statements for Tire City, Inc.

For years ending 12/31 1993 1994 1995

INCOME STATEMENT

Net sales $16,230 $20,355 $23,505

Cost of sales 9,430 11,898 13,612
Gross profit 6,800 8,457 9,893
Selling, general, and
administrative expenses 5,195 6,352 7,471
Depreciation 160 180 213
Net interest expense 119 106 94
Pre-tax income 1,326 1,819 2,115
Income taxes 546 822 925
Net income $780 $997 $1,190

Dividends $155 $200 $240

BALANCE SHEET

Assets
Cash $508 $609 $706
Accounts receivable 2,545 3,095 3,652
Inventories 1,630 1,838 2,190
Total current assets 4,683 5,542 6,548

Gross plant & equipment 3,232 3,795 4,163

Accumulated depreciation 1,335 1,515 1,728
Net plant & equipment 1,897 2,280 2,435

Total assets $6,580 $7,822 $8,983

LIABILITIES

Current maturities of
long-term debt $125 $125 $125
Accounts payable 1,042 1,325 1,440
Accrued expenses 1,145 1,432 1,653
Total current liabilities 2,312 2,882 3,218

Long-term debt 1,000 875 750

Bank Loan
Common stock 1,135 1,135 1,135
Retained earnings 2,133 2,930 3,880
Total shareholders’ equity 3,268 4,065 5,015

Total liabilities $6,580 $7,822 $8,983

 1996 1997

given $28,206 $33,847

Same % as the earlier year 58% 16,359 $19,631
11,847 14,216

Same % as the earlier year 32% 9,026 $10,831.04

213 333
$131 189.8
2,477 2,862
43% 1065 1231
1,412 1,631

Dividend as earlier 20% 282 326

Given 3% of net sales 3% $846 $1,015

Same % as the earlier year 15.68% 4,423 5,307
Same % as the earlier year for the year 1997 1,625 3154
6,894 9,476

2000000 in 1996 and 400000 in 1997 6,163 6,563

1,941 2,274
4,222 4,289

11,116 13,765

$125 $125
Same % as the earlier year 6.42% 1,811 2,173
Same % as the earlier year 7% 1,974 $2,369.29
3,910 4,667

625 500
436 1148
1,135 1,135
5,009 6,314
6,144 7,449

11,116 13,765
Ques 1
Financial Health 1993-1995
1993 1995

Sales 16230 23505 44.82% Increase

Net Income 780 1190 52.56% Increase

Cost of Increase in sales 9,430 13,612 44.35% Increase

Ques 3 1993 1994 1995 1996

Profitability
Return on Sales(Net Profit/Sales) 4.81% 4.90% 5.06% 5.00%
Return on Asset(Profit/Asset) 11.85% 12.75% 13.25% 12.70%
Return on Equity(Profit/Equity) 23.87% 24.53% 23.73% 22.97%

Liquidity
Current ratio(Current Asset/Current liablility) 2.03 1.92 2.03 1.76
Quick Ratio(CA-Inventory)/Current Liability) 1.32 1.29 1.35 1.35

Leverage
Asset/Equity 2.01 1.92 1.79 1.81
Debt/Total Capital 0.23 0.18 0.13 0.15
Interest Coverage 12.14 18.16 23.50 19.89

Activity Ratio
Sales/Asset 2.47 2.60 2.62 2.54
Receiveable Days 57.24 55.50 56.71 57.24
Inventory days 63.09 56.39 58.72 36.26
Payable Days 40.33 40.65 38.61 40.40
`
** The new financial health is weak as
1- Total debt is increasing
2-Return on equity is decreasing
3-Profit/Asset is decreasing
 Ques 4 What would be the impact on TCI’s external funding needs as of the end of 1996 if:
a) Inventory were not reduced by the end of 1996?
If invertory would have not been reduced , then we would have to invest more money ,
so more loan aount and more interest to be paid
b) Accrued expenses were to grow less than expected in 1996?
when the expences would be less, so there would be more profit margin as a result
there would be less loan required

Ques 5 What would be the impact on TCI’s external funding needs as of the end of 1997if
a) TCI depreciated more than 5% of the warehouse’s total cost in 1997?
there would be no changes as such but if the depriciation would increase then the loan
amount would reduce

b) TCI experienced higher price inflation in its revenues and operating costs
1997 (but not in the cost of its warehouse expansion) than was originally
anticipated in 1996 and 1997?
4.82% This would lead to reduction in the funding
11.85%
21.90% c) Days receivables were reduced to 45 days, or days payables were increased
to 45 days?
Funding will reduce
2.03
1.35
Ques 6 Suppose the proposed terms of the bank credit included a covenant (a contractual
obligation that binds a borrower to specific actions or outcomes as a condition for
1.85 extending a loan) that read as follows: “The company must maintain net working
0.18 capital (defined for purposes of this loan as accounts receivable plus inventories
16.08 minus accounts payable) of at least $4 million. For purposes of this covenant, net
working capital will be measured at the end of each fiscal year.’’ Is TCI likely to be
able to satisfy this covenant in both 1996 and 1997?
2.46
57.24 Yes
58.63
40.40 Ques 7 .As a lender, would you be willing to loan TCI the funds needed to expand its
Warehouse facilities and finance its growth? Why or Why not?

Yes
Stong Financially
Capital structure
Debt serving Capacities
Ratio relatively consistent
steady peration margins during transactions