Case #1

Decision Making Across the Organization

You are a loan officer for NYC Metropolitan Bank.Peter Johnson, President of PJ Corporation 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, Johnson provided you with the following facts:

2021 2020

Current ratio3.12.1

Asset turnover2.82.2

Net incomeUp 30%Down 10%

Earnings per share$3.50$2.50

Johnson 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 financial statements.

Instructions:

1. Explain why you would want the financial statements to be audited.
2. Discuss the implications of the ratios provided for the lending decision you are to make. That means,does the information paint a favorable picture? Are these ratios relevant to the decision? Explain the purpose of each of the ratios already provided and what they show.
3. List 3 other ratios that you would want to calculate for this company, and explain why you would use each additional ratio. Explain the purpose of each of the 3 ratios and what they show.