Question

Use the following balance sheet and cash flow information to determine the net worth and net surplus for an individual in a recent month:

Liquid Assets $15,000 Home Value $220,000 Investment assets: $120,000 Personal Property $30,000 Total assets: $385,000 Short Term Debt: $7000 ($250 a month) Monthly Mortgage Payment $1400 on a $180,000 mortgage Total Debt: $187,000 Monthly Gross Income: $11,000 Monthly Disposable Income $ 4000 Monthly Expenses: $7000

Now that the individual above has a better understanding of their situation, let’s analyze further. Given the balance sheet and cash-flow statement information in question 1, calculate the following ratios : Liquidity Ratio, Asset-to-Debt Ratio, Debt-to-Income Ratio , Debt payments-to-disposable income ratio, Investment assets-to-total assets ratio

Answer 1

Networth- Total asset- Total debt $385,000 $187,000 $198,000 Netsurplus= Monthly gross income - monthly expenses = $11,000 - $7,000 $4,000 Liquidity ratio Liquid assets/current liabilities $15,000/$7,000 2.14 Debt to asset ratio-Total debt/total assets = $187,000/$385,000 0.4857 Asset to debt ratio total assets/total debt $385,000/$187,000 = 2.058

Debt to income ratio= Monthly debt payment/monthly gross income = (1,400+250)/11,000 =0.15 Debt payments to disposable income ratio= Monthly debt payment/monthly disposable income $1,650/$4,000= 0.4125. Investment assets to total assets ratio= Investment asset/total asset $120,000/$385,000 = 0.31168