Question

you are a loan officer for white sands bank of Toas. Paul Jason, president of P ajason 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 th following facts:

                         2017 2018
current ratio.    3.1     2.1
asset turnover 2.8      2.2
net income.   up 32% down 8%
earnings per share. $3.30 $2.50

Jason's 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 a minimum, need complete audited financial statements.

Develop a minimum of 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.

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

List 3 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's Corporation, will you recommend approval for the requested loan? Provide specific details to support your decision.

Answer 1

The audited financial statements assist the loan officer to provide loan. Because an audited financial statement gives an assurance that the financial position of the organisation is satisfactory and there are less possibility of frauds and errors . As audited financial statements are based on the material judgement of the auditor , it will be helpful for the officer to provide loan.

The given situation does not paint a favourable picture . As it is seen that the current ratio , asset turnover, profits of the organisation is declining , it shows a negative picture of the organisation . These ratios are not relevant for the decision .

Current ratio is showing a negative trend . It is declining by 1:0 from the last year . It is a unfavorable event . It is significant for the payment of the interest of loan .

Asset turnover is showing a negative trend , it states that the sales of the company is declining and which leads to reduction in profits and his incompetency to pay interests . Thus , it is a unfavorable event.

Decrease in profits is a major unfavorable event. It shows the corporation inability to pay interests on time anday also result in its liquidity .

The payment of low eps also shows that the company is having low profits this year and it is an unfamiliar event .

I would like to use interest coverage ratio , so that I could know how much times the profit is available to pay of the interest.

2nd , I would look it's debt equity ratio , which will tell me that how much equity is there in the company to pay off the existing debt and if I will give him the loan , will he be enough capable to pay me the amount of loan on time .

Thirdly, I would like to calculate the total assets to debt ratio to examine whether there is sufficient assets to pay off the debt , if there will be liquidity in the firm .

I would take a look at its previous lawsuits filed against him , if any . I would also like to know about his trend of profits and growth in industry .

No , I would not like to give loan to the corporation , as it can be seen that there is unfavorable conditions in the corporation . Secondly, the financial data of the corporation is missing , which is a great factor for not providing the loan .