Homework Assignment 1: Tire City Pro Forma for 1997

Homework Assignment 1: Tire City Pro Forma for 1997

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 expenses5,195 $ 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 balances 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 and equity
Current maturities 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 $
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 and equity 6,580 $ 7,822 $ 8,983 $
Exhibit 1 Financial Statements for Tire City, Inc.
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1993 1994 1995 Average
Cost of sales/Sales 58.10% 58.45% 57.91% 58.2%
SG&A/Sales 32.01% 31.21% 31.78% 31.7%
Income tax/Pretax income41.18% 45.19% 43.74% 43.4%
Dividends/Net income 19.87% 20.06% 20.17% 20.0%
Cash/Sales 3.13% 2.99% 3.00% 3.0%
Receivables/Sales 15.68% 15.21% 15.54% 15.5%
Inventories/Sales 10.04% 9.03% 9.32% 9.5%
Payables/Sales 6.42% 6.51% 6.13% 6.4%
Accrued exp/Sales 7.05% 7.04% 7.03% 7.0%
Tire City: Historical Ratios
For years ending 12/31 1993 1994 1995 1996 1997
INCOME STATEMENT
Net sales 16,230 $ 20,355 $ 23,505 $ 28,206 $
Cost of sales 9,430 $ 11,898 $ 13,612 $ 16,403 $
Gross Profit 6,800 $ 8,457 $ 9,893 $ 11,803 $
Selling, general, and administrative expenses5,195 $ 6,352 $ 7,471 $ 8,932 $
Depreciation 160 $ 180 $ 213 $ 213 $
Net interest expense 119 $ 106 $ 94 $ 112 $
Pre-tax income 1,326 $ 1,819 $ 2,115 $ 2,545 $
Income taxes 546 $ 822 $ 925 $ 1,104 $
Net income 780 $ 997 $ 1,190 $ 1,442 $
Dividends 155 $ 200 $ 240 $ 289 $
BALANCE SHEET
Assets
Cash balances 508 $ 609 $ 706 $ 858 $
Accounts receivable 2,545 $ 3,095 $ 3,652 $ 4,365 $
Inventories 1,630 $ 1,838 $ 2,190 $ 1,625 $
Total current assets 4,683 $ 5,542 $ 6,548 $ 6,848 $
Gross plant & equipment 3,232 $ 3,795 $ 4,163 $ 6,163 $
Accumulated depreciation 1,335 $ 1,515 $ 1,728 $ 1,941 $
Net plant & equipment 1,897 $ 2,280 $ 2,435 $ 4,222 $
Total assets 6,580 $ 7,822 $ 8,983 $ 11,070 $
Liabilities
Current maturities 125 $ 125 $ 125 $ 125 $
Bank Debt (Plug) 374 $
Accounts payable 1,042 $ 1,325 $ 1,440 $ 1,792 $
Accrued expenses 1,145 $ 1,432 $ 1,653 $ 1,986 $
Total current liabilities 2,312 $ 2,882 $ 3,218 $ 4,277 $
Long-term debt 1,000 $ 875 $ 750 $ 625 $
Common stock 1,135 $ 1,135 $ 1,135 $ 1,135 $
Retained earnings 2,133 $ 2,930 $ 3,880 $ 5,033 $
Total shareholders' equity 3,268 $ 4,065 $ 5,015 $ 6,168 $
Total liabilities and shareholder's equity6,580 $ 7,822 $ 8,983 $ 11,070 $
Memo:Total liabs and equity less Plug debt 6,580 $ 7,822 $ 8,983 $ 10,695 $
Pro forma assumptions Source 1996 1997
Sales growth given in case 20%
Cost of sales/Sales historical average 58.2%
SG&A/Sales historical average 31.7%
Depreciation given in case 213 $
Interest rate (blended) given in case 10.0%
Income tax rate historical average 43.4%
Dividend payout rate historical average 20.0%
Cash to sales ratio historical average 3.0%
Receivables to sales ratio historical average 15.5%
Inventory assumption 96 given in case; 97 per historical average 1,625 $
Gross CAPEX given in case 2,000 $
Current maturity LTD historical amortization 125 $
Payables to sales ratio historical average 6.4%
Accruals to sales ratio historical average 7.0%
Additions to common stock given in case - $
Historical Pro Forma
Historical and Pro Forma Financial Statements for Tire City, Inc.
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1993 1994 1995 1996 1997
Profitability
Return on Sales 4.81% 4.90% 5.06% 5.11%
Return on Assets ##### ##### ##### #####
Return on Equity ##### ##### ##### #####
Liquidity
Current Ratio 2.03 1.92 2.03 1.60
Quick Ratio 1.32 1.29 1.35 1.22
Leverage
Assets/Equity 2.01 1.92 1.79 1.79
Debt/Total Capital 0.50 0.48 0.44 0.44
Interest Coverage 10.14 16.16 21.50 21.64
Activity Ratios
Asset Turnover 2.47 2.60 2.62 2.55
Days of Receivables57.24 55.50 56.71 56.48
Days of Inventory 63.09 56.39 58.72 36.16
Days of Payables 39.95 37.64 41.29
Performance Ratios Tire City, Inc.