Financial Health
The common thread among investment assets is that
they are purchased for the purpose of generating wealth.
Cameron has $17,000 in monetary assets and $4,000 in current liabilities. What is his current ratio?
17,000/4,000
According to the Keown book, an emergency fund consists of liquid assets that are sufficient to cover ________ of expenditures.
3 to 6 months
Patty has $9,000 in monetary assets, annual living expenses of $36,000, a $12,000 car loan balance, and $45,000 in equity in her house. What is her month's living expenses covered ratio?
3.0 times
Sarah has $15,000 in monetary assets, $48,000 in annual living expenses, a $20,000 balance on her car loan, and $60,000 of equity in her house. What is her month's living expenses covered ratio?
3.75 times
The first section of a balance sheet represents your
Assets
Which of the following statements describe the importance of a budget?
A well-planned budget accurately matches a household's abilities with its financial goals, With a well-planned budget, money will seem to go farther and he will be able to do more with what he has, A well-planned budget prepares someone for the future and the unforeseen events that the future holds.
Which type of expenditure would probably be the hardest for an individual to track?
Cash
Which of the following financial documents would you to use to create a financial plan?
Cash budget, Income statement, Balance sheet, Budget All of the above
Suppose that you wanted to calculate a financial ratio to measure your liquidity. You would most likely use the ________ ratio.
Current
Which of the following would you calculate if you were concerned about your financial resources with regards to unplanned money emergencies?
Current ratio
Your ________ is found by dividing monetary assets by current liabilities and is a good measure of liquidity.
Current ratio
Your ________ is found by dividing total debt or liabilities by total assets.
Debt ratio
How would an income statement help you create a financial plan?
Determines whether you are earning more than you spend
Which questions do financial ratios help you answer?
Do I have the ability to meet my debt obligations? Am I saving as much as I think I am? Do I have adequate liquidity to meet emergencies?
Suppose that David's only assets are an automobile worth $10,000 and a checking account with a $5,000 balance. His only liabilities are a student loan balance of $12,000 and a balance of $9,000 on his car loan. What is his net worth?
Doug is currently insolvent with $6,000 negative net worth.
Below are several people and their current ratios. If they were to lose their jobs today, which one would probably experience financial stress and pressures the quickest?
Elmo has a current ratio of 0.5 times.
A(n) ________ is a reserve or rainy−day fund with money set aside to be used for unexpected expenses or when normal income has been disrupted.
Emergency fund
________ can be more than or less than the price you paid for a given asset, depending on what others are willing to pay for that asset today.
Fair market value
A debt ratio is aimed at determining if you have adequate liquidity to meet emergencies.
False
A vehicle leased in your name is an example of a tangible asset that you would list on your balance sheet.
False
An emergency fund, or rainy−day fund, is comprised of liquid assets sufficient to cover 3.5 years of expenditures.
False
As long as a financial planner is certified you need not worry about his ability to provide you with the correct financial plan for your situation.
False
Commission−only planners charge fees and collect commissions on products they recommend.
False
Insolvency results from earning more than you spend.
False
Net income is used in calculating one's net worth.
False
The house that you are leasing from a landlord is an example of a tangible asset that you would list on your balance sheet.
False
The term "fair market value" refers to how the price of an asset has changed since its original purchase.
False
To determine your net worth, subtract your liabilities from your positive net equity.
False
________ planners charge a fee that is reduced by the amount of the commissions they earn.
Fee-offset
An expenditure over which you have no control, are obligated to make, and is generally at a constant level each month is called a ________ expenditure.
Fixed
An expenditure over which you have no control and are obligated to make is a
Fixed expenditure
An expenditure over which you have control and are not obligated to make, and which may vary from month to month is called a ________ expenditure.
Flexible
Hector's month's living expenses covered ratio is 0.25 months. He just broke his leg and will not be able to work for six weeks. Without a paycheck for six weeks, what will Hector most likely experience?
He may have to liquidate some of his tangible or investment assets to keep current on his monthly bills, He may have to borrow some money to keep current on his monthly bills
A statement that records where your money has come from and where it has gone over some period of time is called a(n)
Income statement
If your liabilities are greater than the value of your assets you are considered
Insolvent
Assets that you purchase for the purpose of accumulating wealth to satisfy your financial goals are called
Investment assets
Jorge has a debt ratio of 37 percent and Jose has a ratio of 102 percent. They both have the same take−home pay every month. How can we describe their current financial situation?
Jose probably doesn't have much money available to enjoy every month, Jorge is currently solvent, Jose is currently insolvent, Jorge probably has more money available to enjoy every month. All of the above
Items on the balance sheet that represent amounts owed to others are termed
Liabilities
Which of the following would be included on a personal income statement?
Making a payment to your credit card company
Your ________include cash, checking and savings account balances, and money market funds.
Monetary assets
Which of the following are not typically found on a balance sheet?
Mortgage interest payments, Interest earned on a CD
Which of the following items would not be included on a balance sheet?
Mortgage payment paid
Suppose that you were trying to determine how much income was available for future monetary needs as well as for investments. Which of the following ratios would you most likely use?
Savings ratio
Suppose that you have been operating an online marketing business out of your home, and the business has recently expanded beyond belief. Since you have neglected your personal finances for some time, what would you do as a first step?
Separate your personal finances from the business finances.
A physical asset such as a high−definition, flat−screen TV or a Harley Davidson motorcycle is called a(n)
Tangible asset
Bradley went shopping today and used his American Express credit card to buy a new pullover sweater. He used his bank debit card to pay for a video game and bought some snack food with cash. Which of these purchases are difficult to track and monitor on his budget?
The snacks are difficult to track because cash transactions don't leave a paper trail.
A successful budget can only be derived from accurate record keeping.
True
An estimate of your anticipated after−tax income available for living expenses is commonly called take-home pay.
True
An income statement tracks the amount of money you have coming in and going out over some period of time, such as a month or a year.
True
Before you can hope to achieve your financial goals, you will need to first measure your current financial health and develop a plan and a budget.
True
Current liabilities are those that can typically be paid off in full within 12 months.
True
Having negative net income every once in a while is not such a bad thing as long as you have planned for it.
True
In some cases insolvency can lead to bankruptcy.
True
The interest charge on your credit card statement should be listed on your personal income statement as a variable expense.
True
To calculate your net worth, subtract your total debt from your total assets.
True
Using financial ratios helps you quickly compare and analyze the raw data found in your personal income statement and balance sheet.
True
An expenditure that you can control over time and that you can manage is a(n)
Variable expenditure
The term "fair market value" refers to
What an asset could be sold for today
Which of the following is a relevant question to ask a financial planner?
What are your credentials and professional designations?Would you provide us with references? Will you provide us with a written estimate of your services and their cost? Would you show us a similar financial plan you have done for someone else? All of the above
Under what conditions should people hire a professional financial planner?
When they run into complex tax or legal issues, When they need someone to improve or validate the plan they prepared themselves, When they start receiving late payment penalties from their creditors,When it is apparent their financial planning skills are limited All of the above
Your financial situation is insolvent when
Your assets are less than your liabilities
What would happen to your net worth if you sold a tangible asset you owned for $1,000 and used the money to pay off your credit card balance for $1,000?
Your net worth would remain the same.
When measuring your current financial health it is important to create
a personal balance sheet, an income statement.
A plan for controlling and forecasting your cash inflows and cash outflows is called a(n)
cash budget.
Planning and budgeting requires
control, discipline., financial restraint. all of the above.
Practical uses of an income statement include
determining if money is available for saving or investing, spotting problem areas of overspending, knowing where your money is going, determining whether you are spending more than you earn. all of the above
Liabilities are best described as
financial debts and obligations that you owe.
The current ratio is a measure of liquidity that reflects
how many times you can pay off your current liabilities by using your liquid assets.
When including an asset such as a car on your balance sheet
list its current value as indicated in a blue book or site like www.edmunds.com.
A personal income statement is prepared
on a cash basis, based on actual cash flows.
Your net worth, or your general level of financial worth, is found by
subtracting your liabilities from your assets.
Suppose that Jacob's assets include a motorcycle worth $12,000 and a checking account with a $3,000 balance, while his liabilities include a credit card balance of $4,000 and a motorcycle loan balance of $7,000. What is his net worth?
$4,000
Suppose that Cathy's assets include an automobile worth $10,000 and a checking account with a $5,000 balance, while her liabilities include a student loan balance of $2,000 and a car loan balance of $8,000. What is her net worth?
$5,000
Alysha has $500 in monetary assets and $5,000 in current liabilities. What is her current ratio?
.10 times
A strong record−keeping system allows you to
.know where you're spending your financial resources, know exactly how much you're spending, track expenses.
Henry currently has $1250 in monetary assets and also has $1250 in current liabilities. What is his current ratio?
1 time
The purpose of using financial ratios is to
better understand how you are managing your financial resources, help analyze your raw data to compare how well you are doing.
