Auditing in business ventures is one of the methods used to indicate whether an organization is creditworthy. One of the reasons that propelled my desire to have the financial statements of P. Jason Corporation audited is to identify the debt service coverage of the company. In addition to the financial ratios that Paul Jason, the president of P. Jason Corporation has provided, the White Sands Bank of Taos needs to know the ability of P. Jason Corporation to settle the various debts and interests that the organization has owed the other financial lenders in the past. Such information will be obtained from the organization through the auditing process. An improvement in the debt service coverage ratio for P. Jason Corporation from the financial year 2016 to 2017 will improve the creditworthiness of the company. The ratio will also enable the bank to be in a better position to make the decisions concerning the lending to the company.
The ratios provided by P. Jason Corporation are relevant to the lending decision that the bank is about to take. The current ratio provides an insight into the company's ability to meet its short-term financial obligations using its most liquid assets. The current ratio increased in 2017 compared to 2016, which is a plus for the creditworthiness of P. Jason Corporation. The asset turnover ratio indicates the profitability of the company based on its ability to generate revenue and sales from its assets. The asset turnover of P. Jason Corporation has increased in the fiscal year 2017 compared to the fiscal year 2016 which contributes to the organization's creditworthiness. The earnings per share ratio also point to the profitability of the company in the market. The increase in the earnings or share value in 2017 from 2016 is an indicator that the company is performing well in its industry and is therefore creditworthy.
Delegate your assignment to our experts and they will do the rest.
The increase in the current ratio from 2.1 in 2016 to 3.1 in 2017 is an indicator of the increased liquidity of the company, which contributes to a rise in its ability to meet financial obligations such as loans. The current ratio boost is therefore favorable for P. Jason Corporation. The increase in the earnings per share from $ 2.50 in 2016 to $ 3.30 in 2017 is favorable for the corporation since it displays the increased profitability of the company and its ability to stabilize and improve the earnings that investors gain per a share of the company. The increase in the net income from 2016 to 2017 is a boost for the favorability of the corporation from a lending perspective. That is because the rise indicates the profitability of P. Jason Corporation. The rise in the asset turnover is favorable for P. Jason Corporation as it indicates the rise in the efficiency of the company to generate profits from its assets, which boosts its creditworthiness.
A financial ratio that the bank would want to calculate for P. Jason Corporation is the debt to equity ratio in the process of calculating the company's creditworthiness (Gutiérrez-Nieto, Serrano-Cinca & Camón-Cala, 2016). The debt to equity ratio will allow the back to determine the percentage of assets of the company that have been financed using debt. The other ratio is the operating margin (Gutiérrez-Nieto, Serrano-Cinca & Camón-Cala, 2016). The operating margin will indicate the profit that P. Jason Corporation makes as a percentage of the total sales made in the selected accounting period. The operating margin will give the bank an insight into the efficiency of P. Jason Corporation in its investment. The last ratio that the bank may consider to determine the creditworthiness of P. Jason Corporation is the inventory ratio (Gutiérrez-Nieto, Serrano-Cinca & Camón-Cala, 2016). The inventory ratio mainly measures the company's purchasing and production efficiency, which displays the number of times that the organization sells its inventory in the stipulated period. The higher the ratio, the more creditworthy the organization will be.
The other aspect of P. Jason Corporation that I would consider to determine its creditworthiness is to run a credit report (Tulung & Ramdani, 2016). Making use of the renowned credit reporting agencies like TransUnion and Equifax, the loan officer will be in a position to focus on the creditworthiness of P. Jason Corporation by focusing exclusively on business credit (Tulung & Ramdani, 2016). The various areas of business credit that will be relevant to the decision by the bank to grant P. Jason Corporation the loan will be the credit records regarding the company's suppliers, historical and data regarding the sector, public records and the credit scores that are connected with the above-mentioned areas (Tulung & Ramdani, 2016). It is also important to consider the Know Your Customer (KYC) guidelines before granting the loan to P. Jason Corporation. The knowledge of the creditworthiness of the business will be based on how much the bank knows about the company (Tulung & Ramdani, 2016). Such information will also be relevant in the determination of the extension given to credit.
Based on the analysis of P. Jason Corporation, I would recommend the approval of their requested loan. Having extensively, focused on the financial indicators of the company that indicates its ability to pay back the money, it is convincing that the company will also be in a position to settle the loan from the bank. Furthermore, there is hope for the increase in financial prowess of P. Jason Corporation since all the ratios provided by the company's president have indicated an upward trend in economic performance. For instance, the increase in the current ratio in 2017 compared to 2016 is a clear-cut indicator that the company's assets are increasing in liquidity, which will make it easier for the taking care of the financial obligations that the company has. The growth in its net income is also a likely factor in its ability to repay the money in good time due to the increase in profitability that the company currently enjoys.
References
Gutiérrez-Nieto, B., Serrano-Cinca, C., & Camón-Cala, J. (2016). A Credit Score System for Socially Responsible Lending. Journal of Business Ethics , 133 (4), 691-701.
Tulung, J. E., & Ramdani, D. (2016). The Influence of Top Management Team Characteristics On BPD Performance. International Research Journal of Business Studies , 8 (3), 155-166.
