8

missing boxes

After graduating from college in May 2018, Ryan Crews started his career in finance at the W&T Corporation, a small to medium-sized warehouse distributor in Nashville, Tennessee. The company was founded by David Winston and Colin Tabor in 2005, after they have worked together in management at Walmart. Although Crews had an offer from Sam's Club, he became excited about the opportunity with W&T. For W&T, 2017 turned out to be a good financial year. But in 2018, the company experienced a 5.2 percent sales reduction, where sales declined from $5.9 million to $5.6 million. The downturn then led to other financial problems, including a 50 percent reduction in the company's stock price. The share price went from $34 per share at the end of 2017 to $17 per share at the end of 2018! David Winston and Colin Tabor want to understand what may have happened. Financial information for W&T for both years is shown in the popup window, where all the numbers, except for per-share data, are shown in thousands W and T Corporation Income Statement ($ thousands) for the Years Ended 12/31/2017 and 12/31/2018 2017 2018 Sales $ 5,900 (3,600) 5,600 (3,300) $ 2,300 $ 2,300 (820) (320) Cost of goods sold Gross profits Operating expenses: Selling, general, and administrative expenses Depreciation expenses Total operating expenses Operating profits Interest expense Earnings before taxes (axble income) Income taxes (770) (490) (1,260) $ (1,140) $ 1,160 (200) 1,040 (270) $ $ 960 (202) 770 (162) 758 Not income $ 608 758 608 Net income Additional information: 140 140 Number of common shares outstanding Dividends paid to stockholders Market price per share $152 $152 $34 $17 W and T Corporation Balance Sheet (s thousands) for 12/31/2017 and 12/31/2018 2017 2018 ASSETS Cash 400 505 Accounts receivable 600 915 Inventories 500 135 880 170 Other current assets $ Total current assets Gross fixed assets 1,635 $ 2,470 $ 4,650 $ 5,050 Total current assets $ $ 1,635 $ 2,470 Gross fixed assets $ $ 4,650 (1,600) 5,050 (2,200) Accumulated depreciation Net fixed assets $ 3,050 $ 2,850 $ $ Total assets 4,685 $ $ 5,320 LIABILITIES (DEBT) AND EQUITY Accounts payable Short-term notes payable $ 400 540 150 250 Total current liabilities $ $ 550 1,150 790 1,200 Long-term debt Total liabilities Common equity: Common stock 1,700 $ 1,990 $ 1,100 1.885 Retained earnings Total common equity 1.100 2,230 $ 2,985 3,330 Total liabilities and equity $ 4,685 $ $ 5,320 a. (1) Compute the financial ratios for W&T Corporation, 2017 2018 Current ratio 2.97 X 3.13 X (Round to two decimal places.) 2017 1.81 X Acid-test ratio 2018 1.80 X (Round to two decimal places.) 2017 Days in receivables 2018 59.63 days 37.11 days (Round to two decimal places.) Days in inventories 2017 50.69 days 2018 97 33 days (Round to two decimal places.) 2017 Days in inventories 50.69 days 2018 97.33 days (Round to two decimal places.) 2017 25 % Operating return on assets 2018 19.5% (Round to one decimal place.) 2017 19.7 % 2018 18.5% Operating profit margin (Round to one decimal place.) 2017 1.26 X 2018 1.05 X Total asset turnover (Round to two decimal places.) Total asset turnover 1.26 X 1.05 X (Round to two decimal places.) 2018 2017 1.93 X Fixed asset turnover 1.96 X (Round to two decimal places.) 2017 2018 37.4 % Debt ratio 36.3 % (Round to one decimal place.) 2017 2018 Times interest earned 5.80 X 3.85 X (Round to two decimal places.) 2018 2017 25.4 % Return on equity 18.3 % (Round to one decimal place.) (2) Complete a common-sized income statement for 2017 and 2018. (Round to one decimal place.) Common-Sized Income Statement ($ thousands) for the Years Ended 12/31/2014 and 12/31/2015 2017 2017 2018 2018 S 100.0 % $ % 5,900 (3.600) % 5,600 (3.300) 2,300 2,300 39.0 % $ Sales Cost of goods sold Gross profits Operating expenses Selling, general, and administrative expenses Depreciation expenses Total operatina expenses % (820) (320) (1.140) % (770) (490) $ (1.260) $ % c. What recommendations would you make to management GIUS) PIONS 2,3 w70 2. JUU % % % (820) (320) $ (1.140) $ 1,160 % Operating expenses: Selling, general, and administrative expenses Depreciation expenses Total operating expenses Operating profits Interest expense Earnings before taxes (taxable income) Income taxes % (770) (490) $ (1,260) 1,040 (270) $ 770 19.7 % % % (200) % 960 16.3 % % (202) % (162) % 758 12.9 % 608 % Net Income