Question

Assignment Content

1. Purpose of Assignment

   This week's focus is on the preparation of financial reports for internal users, such as managers. This case study applies the concepts of managerial accounting, through comparative and ratio analysis, and requires students to identify financial data needed by managers for decision making.

   Resources

   • Ratio Analysis Grading Guide
   • Generally Accepted Accounting Principles (GAAP), U.S. Securities and Exchange Committee (SEC)
   • Scenario Worksheet Tutorial help on Excel and Word functions can be found on the Microsoft Office website. There are also additional tutorials via the web offering support for Office products.

   Assignment Steps

   Scenario: You are a loan officer for White Sands Bank of Taos. Paul Jason, president of P. Jason Corporation, has just left your office. He is interested in an 8-year loan to expand the company's operations. The borrowed funds would be used to purchase new equipment. As evidence of the company's debt-worthiness, Jason provided you with facts (available in the attached Scenario Worksheet). Jason is a very insistent (some would say pushy) man. When you told him you would need additional information before making your decision, he acted offended and said, "What more could you possibly want to know?" You responded you would, at minimum, need complete, audited financial statements.

   Develop a minimum 700-word examination of the financial statements and include the following:

   • Explain why you would want the financial statements to be audited.
   • Discuss the implications of the ratios provided for the lending decision you are to make. That is, does the information paint a favorable picture? Are these ratios relevant to the decision? State why or why not.
   • Evaluate trends in the performance of P. Jason Corporation. Identify each performance measure as favorable or unfavorable and explain the significance of each.
   • List three other ratios you would want to calculate for P. Jason Corporation, and in your own words explain in detail why you would use each.
   • As the loan officer, what else would you do to gain a better understanding of Paul Jason's, and the Corporation's financial picture and why?
   • Based on your analysis of P. Jason Corporation, will you recommend approval for the requested loan? Provide specific details to support your decision.

Answer 1

• 1.Explain why you would want the financial statements to be audited.

The reason we have to do an audit is that we want to make sure all numbers are correct and that nothing fraudulent is going on especially when asking for credit, as stated “The purpose of a financial statement audit is to add credibility to the reported financial position and performance of a business. The Securities and Exchange Commission requires that all entities that are publicly held must file annual reports with it that are audited. Similarly, lenders typically require an audit of the financial statements of any entity to which they lend funds. Suppliers may also require audited financial statements before they will be willing to extend trade credit (though usually only when the amount of requested credit is substantial).” (Braggs, Steven) not doing one does put a red flag up and that someone thing we don’t want.

• Discuss the implications of the ratios provided for the lending decision you are to make. That is, does the information paint a favorable picture? Are these ratios relevant to the decision? State why or why not.

“Ratio analysis is the comparison of line items in the financial statements of a business. Ratio analysis is used to evaluate a number of issues with an entity, such as its liquidity, efficiency of operations, and profitability. This type of analysis is particularly useful to analysts outside of a business, since their primary source of information about an organization is its financial statements.” (Braggs, Steven 2017) These numbers play a big part in the decision making because it gives us a better understand on what’s going on with the company we want to asset turnover the net profit we see a trend that seems to be going the right way but still may need more information.

• Evaluate trends in the performance of P. Jason Corporation. Identify each performance measure as favorable or unfavorable and explain the significance of each.

Current Ratio lets us know if your company can pay off the loan and in this case it look like you can you want to stay higher than a 1 and it seems to be trend really well. Asset turnover you want this number to be high as well which it seems to be slowly climbing up and seems to be going in your favor but I would also keep an eye on it because it if drops that means that sales are slow or inventory is not being done properly. Net income calculates what was made after taxes from one year to another seems that we have gone up a good percentage and this as well goes in your favor. Earning per share is also up which means more profit also want to keep that number up. Overall seems your company is doing we and everything so far is going in your favor.

• List three other ratios you would want to calculate for P. Jason Corporation, and in your own words explain in detail why you would use each.

I would want to do calculations on return on equity, return on asset and profit margin. These will help us go more in depth of how the company is operating it would let us know what is made at the end of the day or quarter.

• As the loan officer, what else would you do to gain a better understanding of Paul Jason's, and the Corporation's financial picture and why?

To gain a better picture and understanding I would want to look more into profit and revenue. These two will give me a better understand on how the company does how much profit is being made because you can make money but won’t see anything at the end because it all went to bills or employees.

• Based on your analysis of P. Jason Corporation, will you recommend approval for the requested loan? Provide specific details to support your decision

Based on the analysis I would approve them for the loan reason is because all number are going up I would want to recommend they don’t do the loan for 8 years only because they’ve only been open for 2 years so they still have a chance of going down so it wouldn’t be wise for them to take out an 8 year loan.