Explain why you would want the financial statements to be audited.
I would want the financial statements to be thoroughly audited for various reasons. First, the audited financial statements offer adequate credibility. There is a lot of confidence officered to either financiers, shareholders or the market. When auditing is done, I am assured of management capability because it is only through verification that 'true' and fair values can be guaranteed. Also, the financiers can get assured of the correct financial performance and position through audited financial statement results. The audited results have a high degree of reliability because independent professionals usually do auditing. The rigorous auditing process can able to identify any company weakness as well as the areas to improve ("Bookshelf Online", 2018). This exercise eventually adds value to the firm. I will be in a position to gauge the quality of the business corrected through the auditing of the financial statement. The opinions and recommendation from the auditors will help the firm to make improvements on the weak points.
Another relevance of auditing is the statutory requirements. Every publicly traded company must be audited as one of the requirements of the security exchange commissioner. Therefore, I will utilize my mandate as the loan officer to focus on the examination of Jason Company's financial statements. As the loan officer, I will make sure that I examine Mr. Jason's financial statements. Before extending credit to this firm, I will have to ensure all auditing rules and regulations were followed to the latter and auditing is done by the independent auditors.
Discuss the implications of the ratios provided for the lending decision you are to make. That is, does the information paint a favorable picture?
The current ratio for Mr. Jason's company for the year 2017 was 3.1.However that of 2016 was 2.1.The ratio is a good indication that this firm has a positive trend when it comes to meeting financial obligations. There is a possibility that the 8-year loan can be repaid back promptly using the fact on the current ratio. This positive trend from the year 2017 compared to that of 2016 current ratio indicates the definite potential for this company. The asset turnover ratio is also useful to measure the efficiency of a company. They determine how productive the company's assets can be utilized to generate revenue. The asset turnover ratio for Jason's company has indicated positive trend from 2016 compared to that of the year 2017.The 2016 asset turnover ratio was 2.2 and that of the year 2017 was 2.8.In fact, there is about 35% increase from the year 2016 to 2017.Therefore, the trend indicates that there company's productivity is rising because of the higher turnover ratios from one year to the other.
Are these ratios relevant to the decision? State why or why not.
These ratios are relevant to decision making for this company. For example, a negative trend in current ratio signals that the company might fail to meet financial obligations in future, and therefore measures to curb the trend becomes necessary. The negative trend in asset turnover ratio means there is underutilization of assets because they are not making expected returns. Reducing net income and earnings per share means the company is not performing well and therefore necessary steps need to be taken to correct the trend.
Evaluate trends in the performance of P. Jason Corporation.
The P.Jason Company has positive trend regarding performance for the two years. The current ratio grew from 2.1 in the year 2016 to 3.1 in the year 2017.That means, the company's ability to meet financial obligations increased. The asset turnover ratio increases from 2.2 in the year 2016 to 2.8 in the year 2018.That means the sales per given period rose by 0.6 from 2016 to 2018.If sales increases, therefore, even revenues increased. The firm thus experiences positive growth. The net income for the company also increases from 8% in the year 2016 to 32% in the year 2017.The growth in revenue indicates that the company is performing very well from one year to another. Finally, earnings per share rose from $2.5 in the year 2016 to %3.3 I the year 2017.The shareholders of this company enjoyed higher revenues in the year 2017 compared to previous year. The four ratios show positive results for the company.
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 describe in detail why you would use each.
P.Jason's Company is performing very well over the two years. The current ratio for Jason Company is favorable because it indicates the positive trend for the two years. Also, Asset turnover ratio is favorable.Net income and earnings per share are also desirable. They both suggest the definite pattern, meaning the company is performing well. There are other ratios which are essential to this company. They can also be used to indicate Jason's company performance for the period stated. Some of them include return on assets, debt to equity ratio and account receivables turnover. I would use these ratios because they are ideal for this case. For instance, ROA would measure the efficiency at which the company utilizes assets in revenue generation (Damodaran, 2016). Debt to equity ratio is also significant because it measures the percentage of company net worth that is used to service for loans. Account receivables turnover ratio is necessary because it shows the rate at which the cash flows into the company is a given period ("Bookshelf Online", 2018).
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?
As a loan officer, I will request for at least 5-10 year financial statements for Jason's company. I will then compare the trend. In case there is a definite trend over the years, I will be more confident with the firm while approving for the loan. I will also focus on other rations to see whether they show a positive and favorable trend. I will also interview the management so that I can know the exact measures they are expecting to take to service loan without being forced. I will get assurance and even opportunity to advice the management.
Based on your analysis of P. Jason Corporation, will you recommend approval for the requested loan?
Based on the analysis of ratios, I will approve for the loan because the company has a high potential to service it. Focusing on all the four rates for the year 2016 and 2017, the performance for this company is excellent. The company shows positive trend regarding revenue generation, efficiency and ability to service the obligation. With such direction, the company will comfortably maintain for the loan.
Bookshelf Online. (2018). Phoenix.vitalsource.com. Retrieved 29 April 2018, from https://phoenix.vitalsource.com/#/books/9781119244929/cfi/6/18!/4/2/2@0:0.00
Damodaran, A. (2016). Damodaran on valuation: security analysis for investment and corporate finance (Vol. 324). John Wiley & Sons.
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