Writing Assignment

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.

OR

Case#2Vertical Analysis

The condensed income statements through operating income for Apple Inc. and Best Buy Co. Inc. are reproduced below for recent fiscal years (numbers in millions of dollars).

Apple Best Buy

Sales$229,234$39,403

Cost of Sales (141,048) (29,963)

Gross profit $88,186 $9,440

Selling, general and administrative expenses (15,261) (7,586)

Research and development expenses (11,581) 0

Operating expenses $(26,842) $(7,586)

Operating Income $ 61,344 $1,854

Instructions:

Prepare comparative common- sized income statements, rounding percents to 1 decimal place. Interpret the analyses by commenting on comparisons of operating income, operating expenses, gross profit, cost of sales and sales.