AFM373 Lecture Notes - Lecture 2: Cash Conversion Cycle, Inventory Turnover, Asset Turnover

• School: University of Waterloo
• Department: Accounting & Financial Management
• Course: AFM373
• Professor: Alan Douglas

Document Summary

Tci is a retail distributor of automotive tires. They have a chain of 10 shops in the northeastern us. Key success factors include: supply and inventory management, customer service, and competitive pricing. Tci"s warehouse facilities have reached capacity due to the rapid growth of the company. Tci is seeking a loan from the bank to fund a warehouse expansion. Relatively low d/c (44% in 1995 vs industry avg of 75. 29% for automotive retail) Need outside financing, since tire city does not have the internal resources to fund the project, peking order theory implies debt will be the next choice: tci has fairly steady and predictable cash flow, tax shields. Tci is not public and would require an ip o to issue public equity. Tc is managing is assets very efficiently, with a strong asset turnover of 2. 62 in: its working capital is not being managed as efficiently, with its cash conversion cycle bei ng 78 days in 1995.