current ratio calculate the current ratio using the information above. remember, the current ratio...
Post on 18-Dec-2015
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Current RatioVisa Bill $355
MasterCard 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
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