Tire City Inc Case Study Solution

Tire City Inc Case Study is included in the Harvard Business Review Case Study. Therefore, it is necessary to touch HBR fundamentals before starting the Tire City Inc case analysis. HBR will help you assess which piece of information is relevant. Harvard Business review will also help you solve your case. Thus, HBR fundamentals assist in easily comprehending the case study description and brainstorming the Tire City Inc case analysis. Also, a major benefit of HBR is that it widens your approach. HBR also brings new ideas into the picture which would help you in your Tire City Inc case analysis.

To write an effective Harvard Business Case Solution, a deep Tire City Inc case analysis is essential. A proper analysis requires deep investigative reading. You should have a strong grasp of the concepts discussed and be able to identify the central problem in the given HBR case study. It is very important to read the HBR case study thoroughly as at times identifying the key problem becomes challenging. Thus by underlining every single detail which you think relevant, you will be quickly able to solve the HBR case study as is addressed in Harvard Business Case Solution.

Problem Identification

The first step in solving the HBR Case Study is to identify the problem. A problem can be regarded as a difference between the actual situation and the desired situation. This means that to identify a problem, you must know where it is intended to be. To do a Tire City Inc case study analysis and a financial analysis, you need to have a clear understanding of where the problem currently is about the perceived problem.

For effective and efficient problem identification,

• A multi-source and multi-method approach should be adopted.
• The problem identified should be thoroughly reviewed and evaluated before continuing with the case study solution.
• The problem should be backed by sufficient evidence to make sure a wrong problem isn't being worked upon.

Problem identification, if done well, will form a strong foundation for your Tire City Inc Case Study. Effective problem identification is clear, objective, and specific. An ambiguous problem will result in vague solutions being discovered. It is also well-informed and timely. It should be noted that the right amount of time should be spent on this part. Spending too much time will leave lesser time for the rest of the process.

Tire City Inc Case Analysis

Once you have completed the first step which was problem identification, you move on to developing a case study answers. This is the second step which will include evaluation and analysis of the given company. For this step, tools like SWOT analysis, Porter's five forces analysis for Tire City Inc, etc. can be used. Porter’s five forces analysis for Tire City Inc analyses a company’s substitutes, buyer and supplier power, rivalry, etc.

To do an effective HBR case study analysis, you need to explore the following areas:

1. Company history:

The Tire City Inc case study consists of the history of the company given at the start. Reading it thoroughly will provide you with an understanding of the company's aims and objectives. You will keep these in mind as any Harvard Business Case Solutions you provide will need to be aligned with these.

2. Company growth trends:

This will help you obtain an understanding of the company's current stage in the business cycle and will give you an idea of what the scope of the solution should be.

3. Company culture:

Work culture in a company tells a lot about the workforce itself. You can understand this by going through the instances involving employees that the HBR case study provides. This will be helpful in understanding if the proposed case study solution will be accepted by the workforce and whether it will consist of the prevailing culture in the company.

Tire City Inc Financial Analysis

The third step of solving the Tire City Inc Case Study is Tire City Inc Financial Analysis. You can go about it in a similar way as is done for a finance and accounting case study. For solving any Tire City Inc case, Financial Analysis is of extreme importance. You should place extra focus on conducting Tire City Inc financial analysis as it is an integral part of the Tire City Inc Case Study Solution. It will help you evaluate the position of Tire City Inc regarding stability, profitability and liquidity accurately. On the basis of this, you will be able to recommend an appropriate plan of action. To conduct a Tire City Inc financial analysis in excel,

• Past year financial statements need to be extracted.
• Liquidity and profitability ratios to be calculated from the current financial statements.
• Ratios are compared with the past year Tire City Inc calculations
• Company’s financial position is evaluated.

Another way how you can do the Tire City Inc financial analysis is through financial modelling. Financial Analysis through financial modelling is done by:

• Using the current financial statement to produce forecasted financial statements.
• A set of assumptions are made to grow revenue and expenses.
• Value of the company is derived.

Financial Analysis is critical in many aspects:

• Decision Making and Strategy Devising to achieve targeted goals- to determine the future course of action.
• Getting credit from suppliers depending on the leverage position- creditors will be confident to supply on credit if less company debt.
• Influence on Investment Decisions- buying and selling of stock by investors.

Thus, it is a snapshot of the company and helps analysts assess whether the company's performance has improved or deteriorated. It also gives an insight about its expected performance in future- whether it will be going concern or not. Tire City Inc Financial analysis can, therefore, give you a broader image of the company.

Tire City Inc NPV

Tire City Inc's calculations of ratios only are not sufficient to gauge the company performance for investment decisions. Instead, investment appraisal methods should also be considered. Tire City Inc NPV calculation is a very important one as NPV helps determine whether the investment will lead to a positive value or a negative value. It is the best tool for decision making.

There are many benefits of using NPV:

• It takes into account the future value of money, thereby giving reliable results.
• It considers the cost of capital in its calculations.
• It gives the return in dollar terms simplifying decision making.

The formula that you will use to calculate Tire City Inc NPV will be as follows:

Present Value of Future Cash Flows minus Initial Investment

Present Value of Future cash flows will be calculated as follows:

PV of CF= CF1/(1+r)^1 + CF2/(1+r)^2 + CF3/(1+r)^3 + …CFn/(1+r)^n

where CF = cash flows
r = cost of capital
n = total number of years.

Cash flows can be uniform or multiple. You can discount them by Tire City Inc WACC as the discount rate to arrive at the present value figure. You can then use the resulting figure to make your investment decision. The decision criteria would be as follows:

• If Present Value of Cash Flows is greater than Initial Investment, you can accept the project.
• If Present Value of Cash Flows is less than Initial Investment, you can reject the project.

Thus, calculation of Tire City Inc NPV will give you an insight into the value generated if you invest in Tire City Inc. It is a very reliable tool to assess the feasibility of an investment as it helps determine whether the cash flows generated will help yield a positive return or not.

However, it would be better if you take various aspects under consideration. Thus, apart from Tire City Inc’s NPV, you should also consider other capital budgeting techniques like Tire City Inc’s IRR to evaluate and fine-tune your investment decisions.

Tire City Inc DCF

Once you are done with calculating the Tire City Inc NPV for your finance and accounting case study, you can proceed to the next step, which involves calculating the Tire City Inc DCF. Discounted cash flow (DCF) is a Tire City Inc valuation method used to estimate the value of an investment based on its future cash flows. For a better presentation of your finance case solution, it is recommended to use Tire City Inc excel for the DCF analysis.

To calculate the Tire City Inc DCF analysis, the following steps are required:

1. Calculate the expected future cash inflows and outflows.
2. Set-off inflows and outflows to obtain the net cash flows.
3. Find the present value of expected future net cash flows using a discount rate, which is usually the weighted-average cost of capital (WACC).
4. Evaluate the potential investment:
   • If the value calculated through Tire City Inc DCF is higher than the current cost of the investment, the opportunity should be considered
   • If the current cost of the investment is higher than the value calculated through DCF, the opportunity should be rejected

Tire City Inc DCF can also be calculated using the following formula:

DCF= CF1/(1+r)^1 + CF2/(1+r)^2 + CF3/(1+r)^3 + …CFn/(1+r)^n

• CF= Cash flows
• R= discount rate (WACC)

Tire City Inc WACC

When making different Tire City Inc's calculations, Tire City Inc WACC calculation is of great significance. WACC calculation is done by the capital composition of the company. The formula will be as follows:

Weighted Average Cost of Capital = % of Debt * Cost of Debt * (1- tax rate) + % of equity * Cost of Equity

You can compute the debt and equity percentage from the balance sheet figures. For the cost of equity, you can use the CAPM model. Cost of debt is usually given. However, if it isn't mentioned, you can calculate it through market weighted average debt. Tire City Inc’s WACC will indicate the rate the company should earn to pay its capital suppliers. Tire City Inc WACC can be analysed in two ways:

• From the company's perspective, it can be analysed as the cost to be paid to the capital providers also known as Cost of Capital
• From an investor' perspective, if the expected return on the investment exceeds Tire City Inc WACC, the investor will go ahead with the investment as a positive value would be generated.

Tire City Inc IRR

After calculating the Tire City Inc WACC, it is necessary to calculate the Tire City Inc IRR as well, as WACC alone does not say much about the company’s overall situation. Tire City Inc IRR will add meaning to the finance solution that you are working on. The internal rate of return is a tool used in investment appraisal to calculate the profitability of prospective investments. IRR calculations are dependent on the same formula as Tire City Inc NPV.

There are two ways to calculate the Tire City Inc IRR.

1. By using a Tire City Inc Excel Spreadsheet: There are in-built formulae for calculating IRR.
2. By using trial-and-error: For this, the following formula will be used:
   IRR= R + [NPVa / (NPVa - NPVb) x (Rb - Ra)]

In this formula:

• Ra= lower discount rate chosen
• Rb= higher discount rate chosen
• NPVa= NPV at Ra
• NPVb= NPV at Rb

Tire City Inc IRR impacts your finance case solution in the following ways:

Tire City Inc Excel Spreadsheet

All your Tire City Inc calculations should be done in a Tire City Inc xls Spreadsheet. A Tire City Inc excel spreadsheet is the best way to present your finance case solution. The Tire City Inc Calculations should be presented in Tire City Inc excel in such a way that the analysis and results can be distinguished to the viewers. The point of Tire City Inc excel is to present large amounts of data in clear and consumable ways. Presenting your data is also going to make sure that you don't have misinterpretations of the data.

To make your Tire City Inc calculations sheet more meaningful, you should:

1. Think about the order of the Tire City Inc xls worksheets in your finance case solution
2. Use more Tire City Inc xls worksheets and tables as will divide the data that you are looking at in sections.
3. Choose clarity overlooks
4. Keep your timeline consistent
5. Organise the information flow
6. Clarify your sources

The following tips and bits should be kept in mind while preparing your finance case solution in a Tire City Inc xls spreadsheet:

1. Avoid using fixed numbers in formulae
2. Avoid hiding data
3. Useless and meaningful colours, such as highlighting negative numbers in red
4. Label column and rows
5. Correct your alignment
6. Keep formulae readable
7. Strategically freeze header column and row

Tire City Inc Ratio analysis

After you have your Tire City Inc calculations in a Tire City Inc xls spreadsheet, you can move on to the next step which is ratio analysis. Ratio analysis is an analysis of information in the form of figures contained in the financial statements of a company. It will help you evaluate various aspects of a company's operating and financial performance which can be done in Tire City Inc Excel.

To conduct a ratio analysis that covers all financial aspects, divide the analysis as follows:

1. Liquidity Ratios: Liquidity ratios gauge a company's ability to pay off its short-term debt. These include the current ratio, quick ratio, and working capital ratio.
2. Solvency ratios: Solvency ratios match a company's debt levels with its assets, equity, and earnings. These include the debt-equity ratio, debt-assets ratio, and interest coverage ratio.
3. Profitability Ratios: These show how effectively a company can generate profits through its operations. Profit margin, return on assets, return on equity, return on capital employed, and gross margin ratio is examples of profitability ratios.
4. Efficiency ratios: Efficiency ratios analyse how efficiently a company uses its assets and liabilities to boost sales and increase profits.
5. Coverage Ratios: These ratios measure a company's ability to make the interest payments and other obligations associated with its debts. Examples include times interest earned ratio and debt-service coverage ratio.
6. Market Prospect Ratios: These include dividend yield, P/E ratio, earnings per share, and dividend payout ratio.

Tire City Inc Valuation

Tire City Inc Valuation is a very fundamental requirement if you want to work out your Harvard Business Case Solution. Tire City Inc Valuation includes a critical analysis of the company's capital structure – the composition of debt and equity in it, and the fair value of its assets. Common approaches to Tire City Inc valuation include

• FCFF
• FCFE
• DDM
• Comparable
  • DDM is an appropriate method if dividends are being paid to shareholders and the dividends paid are in line with the earnings of the company.
  • FCFF is used when the company has a combination of debt and equity financing.
  • FCFE, on the other hand, shows the cash flow available to equity holders only.

  These three methods explained above are very commonly used to calculate the value of the firm. Investment decisions are undertaken by the value derived.

  Tire City Inc calculations for projected cash flows and growth rates are taken under consideration to come up with the value of firm and value of equity. These figures are used to determine the net worth of the business. Net worth is a very important concept when solving any finance and accounting case study as it gives a deep insight into the company's potential to perform in future.

  Alternative Solutions

  After doing your case study analysis, you move to the next step, which is identifying alternative solutions. These will be other possibilities of Harvard Business case solutions that you can choose from. For this, you must look at the Tire City Inc case analysis in different ways and find a new perspective that you haven't thought of before.

  Once you have listed or mapped alternatives, be open to their possibilities. Work on those that:

  • need additional information
  • are new solutions
  • can be combined or eliminated

  After listing possible options, evaluate them without prejudice, and check if enough resources are available for implementation and if the company workforce would accept it.

  For ease of deciding the best Tire City Inc case solution, you can rate them on numerous aspects, such as:

  • Feasibility
  • Suitability
  • Flexibility

  Implementation

  Once you have read the Tire City Inc HBR case study and have started working your way towards Tire City Inc Case Solution, you need to be clear about different financial concepts. Your Mondavi case answers should reflect your understanding of the Tire City Inc Case Study.

  You should be clear about the advantages, disadvantages and method of each financial analysis technique. Knowing formulas is also very essential or else you will mess up with your analysis. Therefore, you need to be mindful of the financial analysis method you are implementing to write your Tire City Inc case study solution. It should closely align with the business structure and the financials as mentioned in the Tire City Inc case memo.

  You can also refer to Tire City Inc Harvard case to have a better understanding and a clearer picture so that you implement the best strategy. There are a number of benefits if you keep a wide range of financial analysis tools at your fingertips.

  • Your Tire City Inc HBR Case Solution would be quite accurate
  • You will have an option to choose from different methods, thus helping you choose the best strategy.

  Recommendation and Action Plan

  Once you have successfully worked out your financial analysis using the most appropriate method and come up with Tire City Inc HBR Case Solution, you need to give the final finishing by adding a recommendation and an action plan to be followed. The recommendation can be based on the current financial analysis. When making a recommendation,

  • You need to make sure that it is not generic and it will help in increasing company value
  • It is in line with the case study analysis you have conducted
  • The Tire City Inc calculations you have done support what you are recommending
  • It should be clear, concise and free of complexities

  Also, adding an action plan for your recommendation further strengthens your Tire City Inc HBR case study argument. Thus, your action plan should be consistent with the recommendation you are giving to support your Tire City Inc financial analysis. It is essential to have all these three things correlated to have a better coherence in your argument presented in your case study analysis and solution which will be a part of Tire City Inc Case Answer.

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