Current Ratio
Visa 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