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