After graduating from college in May 2018, Ryan Crews started his career in finance at 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 had worked together in management at Walmart. Although Crews had an offer from Sams 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 5.3 percent sales reduction, where sales declined from $5.7 million to $5.4 million. The downturn then led to other financial problems, including a 50 per- cent reduction in the companys stock price. The share price went from $36 per share at the end of 2017 to $18 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 below, where all the num- bers, except for per-share data, are shown in thousands.

1. Using what you have learned in this chapter and Chapter 3, prepare a finan- cial analysis of W&T, comparing the firms financial performance between the two years.

2. What conclusions can you make from your analysis?

3. What recommendations would you make to management?

W&T Corporation Income Statements

CHAPTER 4 Evaluating a Firms Financial Performance 141

	2017	2018
Sales	$ 5,700	$ 5,400
Cost of goods sold	(3,700)	(3,600)
Gross profits	$ 2,000	$ 1,800
Operating expenses:
Selling and G&A expenses	$ (820)	$ (780)
Depreciation expenses	(340)	(500)
Total operating expenses	$ (1,160)	$ (1,280)
Operating profits	$ 840	$ 520
Interest expense	(200)	(275)
Earnings before taxes (taxable income)	$ 640	$ 245
Income taxes	(230)	(65)
Net Income	$ 410	$ 180
Additional information:
Number of common shares outstanding	150	150
Dividends paid to stockholders	$ 120	$ 120
Market price per share	$ 36	$ 18

W&T Corporation Balance Sheets

	2017	2018
Assets
Cash	$ 300	$ 495
Accounts receivable	700	915
Inventories	600	780
Other current assets	125	160
Total current assets	$ 1,725	$ 2,350
Gross fixed assets	$ 4,650	$ 4,950
Accumulated depreciation	(1,700)	(2,200)
Net fixed assets	$ 2,950	$ 2,750
Total assets	$ 4,675	$ 5,100
Liabilities (Debt) and Equity
Accounts payable	$ 400	$ 640
Short-term notes payable	250	300
Total current liabilities	$ 650	$ 940
Long-term debt	1,250	1,325
Total liabilities	$ 1,900	$ 2,265
Common equity:
Common stock	$ 1,100	$ 1,100
Retained earnings	1,675	1,735
Total common equity	$ 2,775	$ 2,835
Total liabilities and equity	$ 4,675	$ 5,100