Purpose of Assignment

This week's focus is on the preparation of financial reports for internal users, such as managers. This case study applies the concepts of managerial accounting, through comparative and ratio analysis, and requires students to identify financial data needed by managers for decision making.

Scenario

You are a loan officer for The National Bank. Trish Jones, president of Jones Corporation, has just left your office. She 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, Trish provided you with "facts".

Current Ratio 2019: 1.78 2018: 1.79

Debt to Equity 2019: .98 2018: .88

Profit Margin 2019: .15 2018: .13

Price-Earnings 2019: 8.50 2018: 7.50

When you told Trish you would need additional information before making your decision, she said, "What more could you possibly want to know?"

Support

Accounting: Tools for Business Decision Making-Paul D. Kimmel; Jerry J. Weygandt; Donald E. Kieso

Generally Accepted Accounting Principles (GAAP), U.S. Securities and Exchange Committee (SEC)

Scenario WorksheetTutorial help on Exceland Word functions can be found on the Microsoft Office website. There are also additional tutorials via the web offering support for Office products.

Required

Developa memo to Trish, attempting to get her as a bank client in the long run, of the financial statements and include the following:

Explain why you would want the financial statements to be audited.

Explain how these ratios are relevant [Note: only two of them are] to the bank's decision

Discuss the implications of the ratios provided for the lending decision you are to make.

Explain in detail three other ratios you would want to calculate for Jones Corporation.

Based on your analysis of Jones Corporation, will you recommend approval for the requested loan? Provide specific details to support your decision.