AFM 373 Lecture 4: Tire City Synopsis

4 Pages
Unlock Document

University of Waterloo
Accounting & Financial Management
AFM 373
Alan Douglas

1. Frame the Key Problem in your own words: What's the Case About? What is important about the Case Context? What is the Key Issue? Who are key stakeholders? - Jack Martin, Bank, employees, etc. When is the case taking place? - 1995 Where geographically and in business cycle?: - Central warehouse outside Worcester, Massachusetts (fill orders by stores within 24 hours) - 10 shops in eastern Massachusetts, southern New Hampshire and northern Connecticut What are key activities of the business: - Retail distributor of auto tires in northeastern US Value proposition: - excellent service and competitive pricing = high customer satisfaction (means that they probably have a solid customer base or at least return clients) Role: Jack Martin Request/Key issue: - Company want 5-year loan to finance anticipated growth of company & expansions of warehouse facilities should they take a loan? Are there other ways? Past Relationship with Bank (gives you an idea of whether bank will want to pay them back) - Borrowed funds in 1991, repaid yearly with 125,000/yr - End 1995, owe 875,000 - Have unused line of credit 2. What alternatives are available to address the key issue (list them)? What the company wants: Finance anticipated growth of company & expansions of warehouse facilities because current warehouse cannot meet needs of company Options to get what they want: Take out a loan, Use line of credit 3. Quantitative Analysis - what are the key metrics that we can use to compare the alternatives? Attach your analysis as an Exhibit. • How fast is TC growing? – Steady growth Growth Sales 0.25 0.15 0.20 0.20 Gross Profit 0.24 0.17 0.20 0.20 Net Income 0.28 0.19 0.18 0.20 • How profitable is TC?: Ratios show little to no change. I think they are maintaining their profitability. - How liquid is TC?: not much change in current ratio and quick ratio – maintaining their liquidity 4. Qualitative Analysis - Create a list of important Qualitative factors in comparing alternatives. Why does each factor matter? How important is it? Create a Pros & Cons list for all alternatives, possibly as an Exhibit. a) List of qualitative factors - Can they continue to provide excellent service? - Can they continue to retain customers? - Can they meet their needs? - Flexibility in borrowing money? - Employees? *please see exhibits for pros and cons list for alternatives 5. Make a Reasoned Recommendation -stating which alternative is preferable, based on your analysis. I would see how much they can take out on their line of credit and then consider taking out a loan. I can understand the value of expanding as it allows them to maintain their profitability and growth. I think they may want to consider what they will need in the future so that they can make accommodations now. I don’t think it’s wise to get a loan every few years to make renovations. I would build an expansion with either money from the line of credit or the loan (or both- ie. Can use line of credit to pay off loan). 6. Implementation & Risks- comment on the key risks in implementing your recommendation, and how they can be mitigated.
More Less

Related notes for AFM 373

Log In


Don't have an account?

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.