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I am having a problem getting my memo right for this math done already class, I have the math done. Heres the directions and Ill post the memo outline they gave us and the math I have doneI have to tell them yes on the loan as you will see in my answer to Part 3

Precision company wishes to expand but needs a $300,000 loan. The bank requests that Precision prepare a balance sheet and key financial ratios. Precision has kept formal records and is able to provide financial statements as of December 31, 2017. The industry debt ratio averages 45.00%. The industry return on assets is 2.0%.

You represent Ideal Bank and will present your findings in a memo to report the ratios for Precision, and identify the conclusion of your opinion reached from your analysis of the company’s financials. The memo is to be copied and distributed to the VP of Ideal Bank, so a well-written and detailed memo is crucial. Your memo will be crucial to bank leaders’ decision to lend Precision the $300,000.

Make sure you use complete sentences. Check your work for proper spelling, grammar and punctuation.

Part 1(a) - Return on Total assets

Return on Total Assets = (Earning Before Income And Taxes)/Total Assets*100

Total Assets = $1684000

Earning before Interest and Taxes = $185000

Return on Total Assets = ($185000/$1684000)*100 = 10.99%

Part 1(b) - Its Building Block is Profitability. Profitability ratios measure the how effectively company uses its assets in generating revenue. The ratio explain the relationship between income and Resources.

Company is generating more return on total assets than the industry average. Industry average is 2% and company's return on total assets is 10.99%

Also company is having the very high profit Margin, High Return on Equity. Hence overall Position regarding Profitability is Higher than Industry's average

Part 2(a) - Debt Ratio = Total Debts/Shareholders Equity

Total Debts = $400000

Shareholders Equity = $1019000

Debt Ratio = ($400000/$1019000)*100 = 39.25%

Part 2(b) - Its Building Block is Solvency. Solvency ratio determines the ability of company to meet the liabilities of long term debts. It analyses that whether company has sufficient cash flows to repay the long term debts.

Company debt ratio is 39% which is lesser than Industry Average ratio. It says that company better manages its long term debt financing. Lower debt equity ratio is better. And debt equity ratio of more than 50% is considered unhealthy. Hence company is very much performing better than its Industries sector.

Part 3- Yes, Company is highly able to get the loan of $300000. Company is performing better than Industry averages in terms of profitability and Solvency. Also Company has current ratio of more than 2.0 which says that company has high liquidity. Hence company is Growing in business and has strong financials better than industry average. Hence Company can get the loan of $300000 for expansion

Precision Company

Memorandum

To: Recipient Name

From: Your Name

CC: CC Name

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Jamar Ferry
Jamar FerryLv2
28 Sep 2019

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The following is a transcript of a video

This video explores the vital role of accounting in one of the world's largest firms. Aon is a reinsurance broker, insurance broker, and employee benefits consultant operating in more than 120 countries. Its goal of being the world's most responsive and client-focused insurance company means it must integrate thousands of professionals in hundreds of disciplines in many countries.

Many view accounting as a primary business language. It is of little use, however, unless you know how to "speak" it. Fortunately, the fundamentals—the accounting equation and the double-entry bookkeeping system—are not difficult to learn.

0:01Clearly, in the financial world,

0:03if you want to be an effective accountant,

0:05you just can't be a numbers person.

0:07You also have to understand people.

0:09You need to know how to debate and hold your

0:11position on the arguments that you take.

0:14♪♪

0:34-Narr: You might not have heard of Aon.

0:36They've brokered deals between clients

0:38and more famous insurance companies.

0:40They often even insure

0:42those insurance companies.

0:45In fact, the only building taller than the

0:47Aon building in Chicago is the Sears Tower.

0:50With over 550 offices in 130 countries,

0:55there's a lot of money involved

0:56and a lot of numbers to keep straight.

0:58So who does all that math?

1:00Well, that's easy.

1:01The pencil pushers, the number crunchers,

1:03bean counters, right?

1:05Accountants are traditionally thought of as

1:07humorless people who type into

1:09pocket calculators all day.

1:11Nothing could be farther from the truth.

1:13Accountants are actually some of the most

1:15important and influential people in business,

1:18and Joe Prochaska is probably

1:20the most important accountant at Aon.

1:23Accounting is the process of recording,

1:25categorizing and interpreting financial

1:28transactions, but there are more creative

1:30aspects to accounting than mere bookkeeping.

1:32That's why Joe is usually smiling.

1:35-Oh, yeah, and my staff is learning to smile.

1:37It's very rarely that they see

1:39me frown, okay, but there are

1:40different kinds of smiles.

1:42-At Aon, managerial accountants interpret

1:46financial data for a company's internal use.

1:49Financial accountants such as CPAs summarize

1:52that information for outside parties

1:54like potential investors.

1:56At the end of the year, Joe uses

1:58a tax accountant to assure that

2:00Aon is in full compliance with

2:02changing tax laws, and to assure that Aon is

2:05taking advantage of the best tax strategies.

2:08But Joe gets the lion's share of the duties

2:10when it comes to Aon's financial information.

2:13-The role I play in the process of handling

2:16all these inputs is reviewing all the reports

2:20that come in so that when our management

2:22takes a look at those financial statements,

2:24they can have some assurance that they're

2:26looking at this as our shareholders will be

2:30looking at it when we

2:31present the information.

2:34-Did you know that every book

2:35you've ever read,

2:36every comic strip, poem and Web page,

2:39has its roots in accounting?

2:40That's because the earliest

2:42written languages were created

2:44to keep track of financial transactions.

2:46Every world culture engages

2:48in some form of trade,

2:49and Aon operates in most of those places.

2:53-The information we get

2:54on a monthly and a quarterly basis

2:56from our different operations around the globe

2:59is stated in a variety of currencies,

3:01yet Aon is a U.S.-based company that publishes

3:05its financials in U.S. dollars.

3:07There's a requirement for some assurance from

3:11a party outside the management

3:12of the company that you've done

3:15a fair job in presenting your financials,

3:17that they've been presented reasonably

3:20and in a consistent manner.

3:23-That's why the

3:24Financial Accounting Standards Board created

3:26the Generally Accepted Accounting Principles,

3:29to help everyone get on the same page

3:31with their accountant.

3:32The Generally Accepted Accounting Principles

3:34and the interpretation are one

3:36of my key functions at Aon.

3:38The Securities and Exchange Commission makes

3:41sure that companies stay on that page.

3:44-In its most adverse reaction,

3:46the SEC also is capable of doing

3:49what they would call an enforcement action.

3:52Many of you have heard of Enron,

3:53okay, and WorldCom.

3:56-The core of those principles is

3:58the six-step accountant cycle.

4:00Pretend you're on Joe's staff for a moment.

4:02First, a hundred different people

4:04send you transaction records

4:06from a dozen different departments.

4:08You collect and organize that pile of

4:10receipts, invoices, bank statements and

4:12purchase orders, account by account,

4:15into a book called a journal.

4:17Now divide all those

4:18transactions into purchases, sales,

4:21investments and so on, in a ledger.

4:24When that's done, do a trial balance

4:26to check your work.

4:28If it's off, go back and find the error.

4:31If it's okay, you can now begin

4:33the real task of accounting,

4:35reporting and analysis.

4:36-The mechanics of doing the accounting,

4:39that doesn't excite me too much.

4:41But going through the philosophy

4:42of what you're trying to accomplish

4:44and how you match revenue and expenses,

4:47which is really the underlying philosophy behind

4:50Generally Accepted Accounting Principles,

4:52to make sure when you recognize the revenue,

4:54you recognize the proportion of the expense.

4:57There's a lot of judgment and

4:58interpretation of what goes into

4:59an individual company in doing that.

5:05The two most basic reports you'll do are the

5:07balance sheet and income statement.

5:10The balance sheet contains the

5:12fundamental accounting equation.

5:14Assets are all the things Aon owns,

5:16like furniture and investments.

5:18Liabilities are how much the company owes

5:21others in the form of loans,

5:22bonds or unpaid bills.

5:24Equity is a little trickier to understand.

5:27Say that Aon owns $100,000, although we can

5:30pretty much guarantee they made a lot more.

5:33If they owe $70,000 in bills and loans to

5:36run the business, the $30,000 difference

5:39is called owners' equity.

5:42That's the amount of actual value

5:43that Aon's stockholders divide up

5:45between them to see how much their

5:47investment is worth at the moment.

5:49The income statement covers a specific period

5:52such as a quarter or year.

5:53It starts with revenue, which is all

5:56of Aon's earnings for the period,

5:58including sales, licensing fees

6:00and gains on investments.

6:02By subtracting the cost of goods sold,

6:04which is the amount of money applied

6:06to producing and distributing a product,

6:09you come up with a gross margin,

6:11or the profit and loss for the period.

6:18Okay, we've been throwing a lot of terms

6:20around, so let's take a break and learn a

6:22little bit more about what Aon does.

6:25One particularly interesting service

6:27has to do with extreme weather.

6:28-For instance, we do catastrophe modeling

6:32for hurricanes so that some of our insurance

6:35clients that may insure a whole lot

6:36of homes along the Gulf Coast to Florida

6:39what happens if a certain hurricane comes?

6:41What type of insurance or reinsurance

6:43protections do they need to make sure

6:46that they're still financially solvent

6:47if a big wind blows and takes out a

6:49lot of their clients' homes?

6:53In addition to that,

6:54one of the things that we innovated,

6:55we were one of the first people

6:56to provide a terrorism model.

7:00And you may be aware that Aon lost

7:02its major operations in New York,

7:04and we lost 175 of our associates

7:06in the World Trade Center disaster.

7:08That certainly spurred us into taking a look

7:11at what can we do to help companies manage

7:14and monitor their exposure to terrorism acts,

7:18and we've done a - have a strategic

7:20partnership with Rudy Giuliani and his group

7:23to try and help companies

7:25prevent and prepare for

7:27if a disaster like that would ever occur again.

7:34Okay, back to the income statement.

7:37Subtract the operating expenses of the company

7:39- that's salaries, electricity and stuff -

7:42from the gross margin to reveal

7:44net income before taxes.

7:46Then, obviously, subtract the taxes,

7:48and you get Aon's net income or net loss.

7:52That figure is what's known as

7:53the bottom line.

7:54If these two reports seem similar,

7:58just remember that the balance sheet is

8:00like a snapshot of the business at any

8:02particular moment, while the income statement

8:05is more like a movie of the company's

8:07performance over a certain period of time.

8:09Now you're at the final and most important

8:12step of the accounting cycle, analysis.

8:15A good example of analysis is budgeting,

8:18which looks at Aon's history to

8:19find ideas for the future.

8:22The budgeting and the planning process

8:23help us analyze and understand that

8:25and create a consensus among management

8:28of what are reasonable expectations

8:30for the coming years,

8:32and it also helps us to give some guidance to

8:34our shareholders on what they should expect

8:36for earnings from our company, which then

8:39I think also helps give people guidance

8:41on what reasonable valuations of our

8:43companies are for our shares.

8:45There are a host of other analyses

8:47you can do, financial ratios

8:49and activity ratios and liquidity tests.

8:52Of course, you don't have to do

8:53all of this math in your head; these days,

8:56most of it can be done by computer software.

8:58I can't think of anybody in our

9:01financial shop that doesn't have a computer

9:03on their desk, and I'm probably one of the

9:04biggest dinosaurs in that I can read all these

9:07financial reports and I can manipulate them,

9:09but I'm too far away from them

9:11to actually create them anymore.

9:13But clearly, the analysis and

9:15the financial reporting is definitely enhanced

9:18by the reporting tools that exist in computers.

9:22Well, your first day as an

9:23accountant went pretty well.

9:25You made a few decisions and learned a little

9:27about how Aon functions financially.

9:29If you're interested in learning more about

9:31accounting as a career,

9:32talk to your instructor.

9:34On the other hand, if accounting isn't for you,

9:36don't worry; your day hasn't been wasted.

9:39Understanding and applying the

9:41basic fundamentals of accounting is a skill that

9:43will help you in almost any

9:45business endeavor you pursue.

9:47Clearly, if you want to do

9:48anything in business - and I am biased,

9:51but there is no better foundation than

9:53having an accounting background,

9:55because that's how businesses are

9:57measured at the end of the day, and the

10:00intrepretation of those numbers are critical.

Question:

The value of the owners' interests is the same as

short-term liabilities.

equity.

revenue minus costs.

liabilities minus assets.

profits plus revenue.

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