You are a loan offi cer for White Sands Bank of Taos. Paul Jason, president of P. Jason Corporation, has just left your offi ce. 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 the following facts.

2017 2016 Current ratio 3.1 2.1 Asset turnover 2.8 2.2 LO15 Net income Up 32% Down 8%

Earnings per share $3.30 $2.50 Jason is a very insistent (some would say pushy) man. When you told him that you would need additional information before making your decision, he acted offended and said,

“What more could you possibly want to know?” You responded that, at a minimum, you would need complete, audited fi nancial statements.

Instructions With the class divided into groups, answer the following.

(a) Explain why you would want the fi nancial statements to be audited.

(b) 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?

(c) List three other ratios that you would want to calculate for this company, and explain why you would use each.

COMMUNICATION ACTIVITY