Financial status auditing for Paul Jason Corporation

Topic 

Financial status auditing for Paul Jason Corporation

Instructions 

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.

Format the assignment consistent with APA guidelines.

Answer Preview

First, I would want to calculate the corporation’s leverage, which is the ratio of debt to equity. A higher leverage ratio is bad for the company because it means that in the event of a disruption in its business, it would be unable to service its debts as required thus becoming insolvent. This increases risks to the lender.

Secondly, I would look at the company’s free cash flows, which is the amount left after taking into account operating and investing cash flows. In other words, this is the money left after paying for a company’s operations and maintaining its assets to continue producing into the future. It represents the amount left for financiers and shareholders of a company. The higher the free cash flows, the more suitable a company is to lenders.

Thirdly, I would consider the profit margin of the company. This amount is what the organization makes as profit per dollar of revenue. The higher the profit margin, the more attractive it is to lenders and shareholders.

Word count: 800