Current Ratio Visa Bill 355 Master Card Bill

Current Ratio Visa Bill $355 Master. Card Bill $245 Monthly Utilities $275 Car Payment $265 Savings Account $2300 Checking Account $825 Cash $400 Calculate the current ratio using the information above. Remember, the current ratio is Monetary Assets/Current Liabilities.

Current Ratio explained • Monetary Assets= Cash, checking, savings/CDs, money market funds • Current Liabilities= current bills and credit card debts • $2300 + $825 + $400 =3525 =3. 09 $355 + $245 + $275 + $265 1140

Month’s Living Expenses Covered Ratio Calculate the month’s living expenses covered ratio, which is Monetary assets/(annual living expenditures/12) Annual Living Expenditures $52, 296 Savings Account $2300 Checking Account $825 Cash $400

Monthly Living… explained • Monetary Assets= Cash, checking, savings/CDs, money market funds • Annual Living Expenses (can be found on income statement) • $2300 + $825 + $400 =3525 =. 81 $52, 296/12 4358 Meaning they have enough cash and liquid assets on hand to cover. 81 months of expenditures

Debt Ratio • Calculate the debt ratio, using the total debt or liabilities/ total assets Total Debt $189, 600 Total Assets $301, 250

Debt Ratio Explained • Tells what percentage of your assets has been financed by borrowing • $189, 600 =. 63 or 63% of their income $301, 250 If you manage your finances well, this ratio should go down as you get older.

Long Term Debt Coverage Ratio • Calculate the long term debt coverage ratio using Total Income Available for Living Expenses/Total Long-Term Debt Payments Income Available for Living Expenses $65, 510 Mortgage Payments $20, 656 Automobile Payment $2, 588 College Loan Payment $1500 Installment Loan on TV $265

Long-term Explained • Living Expenses (given on income statement) • Debt payments can be found by adding all long-term debts (payments over a year) • 65, 510____ = 2. 16 $20, 656 + $2, 588 + $1500 + $265 • A debt coverage ratio of less than approximately 2. 5 should raise a caution flag.

Calculate Savings Ratio • Calculate the savings ratio using Income Available for Savings and Investment/ Income Available for Living Expenses Income Available for Savings and Investment $4, 276 Income Available for Living Expenses $56, 510

Savings Ratio Explained • $4276 =. 076 $56, 510 • Explains how much of your income you are saving and investing

Calculate Net Worth • Assets- Liabilities = Net Worth or Equity