Accounting Case Study: Analyzing P. Jason Corporation Loan Application

This case study analyzes a loan application submitted by Paul Jason, president of P. Jason Corporation, to White Sands Bank. As a loan officer, the task is to assess the company's debt-worthiness based on provided financial data, including current ratio, asset turnover, net income, and earnings per share for 2016 and 2017. The analysis involves evaluating the relevance of the provided information, calculating additional ratios like interest coverage, debt to equity, and debt ratios, and assessing the feasibility of the expansion plan. The student recommends whether to approve the loan based on the company's financial performance and potential to generate returns. The assignment emphasizes financial statement analysis, ratio interpretation, and making informed loan decisions. The provided solution includes the analysis of the given financial data and the calculation of additional ratios to assess the company's financial health and ability to repay the loan.

Running head: ACCOUNTING
Accounting
Name of the Student
Name of the University
Author’s Note

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Table of Contents
Requirement 1............................................................................................................................2
Requirement 2............................................................................................................................2
Requirement 3............................................................................................................................2
Requirement 4............................................................................................................................3
Requirement 5............................................................................................................................4
Requirement 6............................................................................................................................4
References..................................................................................................................................5

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Requirement 1
Audited financial statements ensure the truthfulness and reliability of the financial
information in them. This truthfulness and reliability of financial information eliminates the
influence of any misrepresentative financial information in the decision making process.
There is a high probability that Paul Jason provides the loan officer with misleading financial
information on P. Jason Corporation’s financial performance and position so that the loan can
easily be obtained. Audited financial statements eliminate this risk (Alrshah, 2015). This is
the reason for demanding the audited financial statements by the loan officer.
Requirement 2
A favourable financial condition of P. Jason Corporation is reflected from the
provided rations to get the loan. All four rations have improved in 2017 from 2016 which
indicates towards the financial stability of P. Jason Corporation to fulfil the future loan
obligations and this should be considered as a positive aspect to get the loan. Relevance is a
crucial aspect that needs to be considered as the provided ratios to the loan officer by Paul
Jason is not relevant to approve the loan as these ratios do not adequately demonstrate the
company’s solvency risk. Assessment of the solvency risk is a crucial facet to honour the
long-term loan obligations (Anthony et al., 2019).
Requirement 3
The provided ratios by Paul Jason represents the improvement of the financial
performance of P. Jason Corporation.
Current Ratio – P. Jason Corporation has registered as increase in the current ratio in 2017
that is from 2.1 to 3.1 that is involved in measuring the liquidity position. Increase in this
ratio depicts improvement in the company’s ability to pay off the current obligation and this
is a favourable condition. Current ratio has major significance in the negotiation of short-term

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loans and credit by showing the ability of the company to repay the current liabilities (Öztürk
& Karabulut, 2018).
Asset Turnover – The use of this ratio can be seen in assessing a company’s competence to
use its assets to produce sales and the trend of this ratio of P. Jason Corporation is favourable.
This ratio has registered a growth from 2.2 in 2016 to 2.8 in 2017 which shows the improved
efficiency of the company to use its assets for sales generation. This ratio has major
importance for assessing a company’s potential to improve the future performance through
the use of its assets (Warrad & Al Omari, 2015).
Net Income – Positive sign can be seen in the net income of P. Jason Corporation as this has
increased in 2017 from 2016. Growth in this ratio has improved from 8% in 2016 to 32% in
2017. Increase in net income is a crucial as this demonstrates the company’s potential to
produce future earnings for the shareholders.
Earnings per Share (EPS) – EPS assesses whether a company’s financial performance is
adequate or not. There is improvement in the profitability of P. Jason Corporation since EPS
has registered a growth from $2.50 in 2016 to $3.30 in 2017. EPS has major significance to
show the investors the earnings characteristics of a company for making buying and selling
decisions of the company’s stocks.
Requirement 4
Interest coverage ratio, Debt to equity ratio and Debt ratio are the three additional
ratios that need to be calculated for P. Jason Corporation.
The main aim of using the interest coverage ratio is to assess P. Jason Corporation’s
capability to repay the interest expenses associated with the offered loan.

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The main aim of using the debt to equity ratio and debt ratio is to assess the
company’s solvency position. Analysis of these two ratios will provide the loan officer with
the valuable insight on whether the debt level of the company is maintainable or
unmaintainable to satisfy the long-term loan obligations (Kahn & Baum, 2020).
Requirement 5
Apart from assessing the ratios, the loan officer needs to assess the feasibility of the
expansion of Paul Jason’s business for which the loan is expected to be taken. It is crucial to
acquire information on the feasibility of the business operation for approving the loan as this
will show the credibility of the operations to generate adequate return for repaying the loan
and paying the associated interest in future (Jo et al., 2015).
Requirement 6
On the basis of the analysis of P. Jason Corporation, it is recommended to the loan
officer to approve the loan. There has been increase in the financial performance of the
company in 2017 and analysis of the provided ratios supports this notion. This indicates that
P. Jason Corporation will be able in generating adequate return for repaying the loan and
paying the interests associated with the loan.

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References
Alrshah, A. M. (2015). An empirical analysis of audited financial statements reliability:
Mediating role of auditor quality. International Journal of Finance and
Accounting, 4(3), 172-179.
Anthony, P., Behnoee, B., Hassanpour, M., & Pamucar, D. (2019). Financial performance
evaluation of seven Indian chemical companies. Decision Making: Applications in
Management and Engineering, 2(2), 81-99.
Jo, H., Lee, H., Suh, Y., Kim, J., & Park, Y. (2015). A dynamic feasibility analysis of public
investment projects: An integrated approach using system dynamics and agent-based
modeling. International Journal of Project Management, 33(8), 1863-1876.
Kahn, M. J., & Baum, N. (2020). Basic Accounting and Interpretation of Financial
Statements. In The Business Basics of Building and Managing a Healthcare
Practice (pp. 13-18). Springer, Cham.
Öztürk, H., & Karabulut, T. A. (2018). The relationship between earnings-to-price, current
ratio, profit margin and return: an empirical analysis on Istanbul stock
exchange. Accounting and Finance Research, 7(1), 109-115.
Warrad, L., & Al Omari, R. (2015). The impact of turnover ratios on Jordanian services
sectors’ performance. Journal of Modern Accounting and Auditing, 11(2), 77-85.