Grammy is considering purchasing Warehouse Distribution, Inc., a small- to medium-sized warehouse distributor in Nashville, Tennessee. She wants a national distribution system to deliver product to grocery stores and gas station mini-marts. Warehouse Distribution, Inc., has the capability to operate in all 50 states. Grammy sent you to meet with the owners and report back to the board of directors whether or not an acquisition should be approved. She has two primary concerns that you must satisfy before being willing to move forward. First, is the company financially viable? Second, does Warehouse Distribution operate with biblical principles? You know the owners are active in their local church, but you need to know how that impacts their business.

The year of 2012 turned out to be a good year financially for the business. But in the ensuring year, 2013, 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 percent reduction in the companys stock price. The share price went from $36 per share at the end of 2012 to $18 per share at the conclusion of 2013!

Financial information for Warehouse Distribution, Inc., for both years is shown below, where all the numbers, except for per-share data, are shown in $ thousands.

Using what you learned in this chapter and Chapter 3, prepare a financial analysis of Warehouse Distribution, Inc., comparing the firms financial performance between the two years. In addition to the financial information included in the case, the companys chief financial officer, Mike Smith, has estimated the companys average cost of capital for all its financing to be 10.5%.

Based on your analysis would you recommend doing business with Warehouse Distribution, Inc., based on their financial strength? Support your recommendation because the board will want to know why?

What three questions will you ask the executive leaders of Warehouse Distribution, Inc. to evaluate whether or not they operate the company based on biblical principles?

What answers would give you confidence that they do operate Warehouse Distribution on biblical principles?

APPLYING RATIO ANALYSIS
EVALUATING A FIRM'S FINANCIAL PERFORMANCE
DATA
Warehouse Distribution, Inc.
	2012	%	2013	%	Change
Cash	$300	6.4%	$495	9.7%	$195
Accounts receivable	700	15.0%	915	17.9%	215
Inventories	600	12.8%	780	15.3%	180
Other current assets	125	2.7%	160	3.1%	35
Total current assets	$1,725	36.9%	$2,350	46.1%	$625
Gross fixed assets	$4,650	99.5%	$4,950	97.1%	$300
Accumulated depreciation	(1,700)	-36.4%	(2,200)	-43.1%	(500)
Net fixed assets	$2,950	63.1%	$2,750	53.9%	($200)
Total assets	$4,675	100.0%	$5,100	100.0%	$425
LIABILITIES (DEBT) AND EQUITY
Accounts payable	$400	8.6%	$640	12.5%	$240
Short-term notes payable	250	5.3%	300	5.9%	50
Total current liabilities	$650	13.9%	$940	18.4%	$290
Long-term debt	$1,250	26.7%	$1,325	26.0%	$75
Total liabilities	$1,900	40.6%	$2,265	44.4%	$365
Common stock (par & paid in capital)	$1,100	23.5%	$1,100	21.6%	$0
Retained earnings	1,675	35.8%	1,735	34.0%	60
Total common equity	$2,775	59.4%	$2,835	55.6%	$60
Total liabilities and equity	$4,675	100.0%	$5,100	100.0%	$425
Warehouse Distribution, Inc. Income Statement
Sales	$5,700	100.0%	$5,400	100.0%	($300)
Cost of goods sold	(3,700)	-64.9%	(3,600)	-66.7%	100
Gross profits	$2,000	35.1%	$1,800	33.3%	($200)
Operating expenses:
Selling and G&A expenses	($820)	-14.4%	($780)	-14.4%	$40
Depreciation expenses	(340)	-6.0%	(500)	-9.3%	(160)
Total operating expenses	($1,160)	-20.4%	($1,280)	-23.7%	($120)
Operating profits	$840	14.7%	$520	9.6%	($320)
Interest expense	(200)	-3.5%	(275)	-5.1%	(75)
Earnings before taxes	$640	11.2%	$245	4.5%	($395)
Income taxes	(230)	-4.0%	(65)	-1.2%	165
Net Income	$410	7.2%	$180	3.3%	($230)
Number of shares outstanding (thousands)	150		150
Dividends paid ($thousands)	$120		$120
Market price per share	$36		$18
Solution
A)
RATIOS	2012		2013
Current ratio	0.91		1.04
Acid-test ratio	1.54		1.50
Days in receivables	149.4		206.2
Days in inventories	-59.2		-79.1
Operating return on assets	18.0%		10.2%
Operating profit margin	14.7%		9.6%
Total asset turnover	1.2		1.1
Fixed asset turnover	1.9		2.0
Debt ratio	41%		44%
Times interest earned	-4.2		-1.9
Return on equity	14.8%		6.3%
	2012		2013
Earnings per share	$2.73		$1.20
Dividends per share	$0.80		$0.80
Price/Earnings	13.17		15.00
Book value per share	$18.50		$18.90
Market/Book	1.95		0.95
Cost of Capital	10.50%		10.50%
OROA	18.0%		10.2%
Total assets ($thousands)	$ 4,675		$ 5,100
EVA ($thousands)	$349.1		($15.5)
I am not sure how to answer the question the are asking- I have done the Evaluation - just not sure how to answer the question.