GUPTA’S -PERSONAL

FINANCIAL STATEMENTS
AND PLANS

IMG-3
Personal Wealth Management

Submitted By: Group No. 8 Submitted To: Prof. Vinay Dutta

Anand Kumar (93009)

Jharna Talreja (93019)

Ravindra Kumar (93039)

Table of Contents
Introduction to Case Study..........................................................................................................................3
Objective.....................................................................................................................................................3
Methodology...............................................................................................................................................3
Personal Financial Goals.............................................................................................................................4
Current Year Statements and Future Years Projections...............................................................................7
Cash Flow Statement...............................................................................................................................7
Balance Sheet..........................................................................................................................................9
Ratios for Personal Financial Evaluation...................................................................................................10
Introduction to Case Study
The case study aims at developing personal financial statements and plans for the Gupta family
which consists of Sunil Gupta who is an Assistant Manager with a KPO and his wife Nishi
Gupta who is a fashion designer. Mrs Gupta has learned that she is pregnant and this makes them
to think over their savings and expenses patterns. Up till now they have lived a comfortable life
in which all bills were paid on time, they used to go on trips , recreation , entertainment and other
such luxuries. Mrs Gupta is concerned about how they will manage the finances after the birth of
their first child as she would be quitting her job soon.

Nishi is pondering how they will manage their income in the future years. She is also
contemplating if she would be required to join her job back again after some time. Sunil has
suggested that they would reduce their spending on luxuries, have ample amount of savings to
draw from and also sell some of their shares in case of an emergency. Despite all the arguments,
Nishi feels the need for review of financial condition in order to do some serious planning.

Objective
 To understand the process of creating and evaluating personal financial statements such
as cash flow statement, balance sheet and budget and use of this budget for monitor and
control spending.
 To understand calculation of personal financial ratios and interpret the same.

Methodology
The following aspects have been covered

1) Understand the profile of the couple, their current and future plans and their
demographics.
2) With a view of their profile, charting the short, medium and long term personal financial
goals for the two of them.
3) Preparing a budget for the current financial year and understanding the degree of variance
between the actual and budgeted allocations.
4) Calculating various relevant personal financial ratios for the couple and assessing the
financial position of the couple in the view of these ratios.
Personal Financial Goals
The Gupta family’s short term, medium term and long term plans are described below in
SMART format. These goals have been set keeping in mind the current financial position as well
as the future requirements of the family.

Short Term Goals

Goal 1: Child birth expenses

Specific Child birth expenses.

Measurable Save an amount of Rs 100,000 for the hospital expenses towards maternity
expenses.
Accurate Same as above.
Relevant This is required as the couple is going to have a baby in next six months. The
amount has been decided keeping in mind the current lifestyle of the couple.
Time Next 6 months.

Goal 2: Reduce recreational and entertainment expenses

Specific Reduce recreational and entertainment expenses.

Measurable Reduce the amount on trips abroad to 0 for the coming years and the
entertainment expenses to half.
Accurate Same as above.
Relevant This is required as the couple is going to have an extra family member and the
Nishi Gupta is also going to leave her job for the time being.
Time Next 12 months.

Goal 3: Credit card repayment

Specific Credit card repayment.

Measurable Repay outstanding credit card payment and bring down the balance to Rs. 0.
Accurate Same as above.
Relevant Credit card outstanding attracts an annual interest rate of around 36% which is
very high by any standards. Hence this amount has to be repaid as soon as
possible.
Time Next 18 months.

Intermediate term goals

Goal 1: Payoff car loan

 Specific Payoff car loan.
Measurable Repay outstanding credit card payment of Rs. 86,000.
Accurate Same as above.
Relevant The car loan outstanding has to be repaid as the amount remaining is very less
and it will lead the family to have liquidity.
Time Next 24 months.

Goal 2: Home renovation

Specific Home renovation.

Measurable A sum of Rs. 100,000 has to be set aside for the renovation of the house.
Accurate Rs. 25,000 a year needs to saved for this.
Relevant The family is going to have a child in the house so it is expected that they will
need to renovate the house after a period of time.
Time Next 4 Years.

Goal 3: Increase cash-in-hand

Specific Increase cash-in-hand.

Measurable A sum of at least Rs. 30,000 a year has to be saved as cash-in-hand.
Accurate Rs. 30,000 a year needs to saved for this. The saving rate should be increased in
proportion with inflation rate.
Relevant Cash provides liquidity for any family and is required for day to day activities.
Time Next Year onwards.

Long Term Goals

Goal 1: Home loan repayment

Specific Saving for home loan repayment

Measurable In the long term they have to keep saving an amount equal to annual instalment
payable towards the home loan.
Accurate Towards the later years, the component of EMI towards principal goes up, while
interest component goes down, they have to save in order to keep fulfilling their
fixed commitment towards the loan in order to pay off the loan on time.
Relevant Same as above.
Time Within 10 years from now.

Goal 2: Taking life insurance cover

Specific Take life Insurance cover for self and family.

Measurable They have to take life insurance for self as well as family keeping in view the
future uncertainties. The insurance has to be in tune of around 40-50 Lac looking
 at their social status and yearly income.
Accurate Rs. 75,000 a year has to be provided for taking the insurance.
Relevant The insurance is a basic requirement for a family.
Time Starting now for next 20 years.

Goal 3: Savings for child’s education

Specific Savings for child’s education

Measurable It is assumed to have around Rs 20 Lacs for child’s higher education.
Accurate To save Rs. 5000 per month.
Relevant Building of a corps towards child’s higher education.
Time Within 20 years from now.
Current Year Statements and Future Years Projections
Cash Flow Statement
 
Sunil and Nishi
Gupta
March 31,
Current Year 2011 31-Mar-12
 
Income (Cash Inflows) Rs. Rs. Rs.
Salary  
Sunil Gupta 1440000 1656000 1821600
Nishi Gupta 1050000 350000 0
Total 2490000 2006000 1821600
Less:  
Income Tax 504000 433,630 425,000
Social Security 204000 160,480 145,728
Total Deductions 708000 594,110 570,728
Take-Home pay 1782000 1,411,890 1,250,872
   
   
Interest earned on Savings 1552 4500 2500
Income from Investments 36000 45000 45000
Redemption of Mutual Funds/ Equity Shares - 50000 0
Total Income 1819552 1,511,390 1,298,372
Cash Outflows  
Fixed Expenses  
Home loan payment 376000 376,000 376,000
Home insurance premium 32000 32,000 32,000
Car insurance premium 16000 16,000 16,000
Car loan payment 86000 86,000 20,000
Life Insurance Premium 0 75,000 75,000
Total Fixed Outflows 510000 585,000 519,000
Variable Expenses      
Food and Clothing 260000 300000 300000
Utilities 79600 81988 81988
Telephone 25600 26368 25000
Medical Expenses 24000 45000 30000
Transportation 112000 80754 75000
Trip to US and Canada 200000 0 0
Recreation and Entertainment 160000 80000 80000
Household Furnishings   10,000 10,000
Credit Card and Personal loan repayment   115,400 0
Home renovation     25,000
Miscellaneous Payments 25000 25,000 30,000
Child Care Expenses   25,000 25,000
Child Birth Expenses   100,000 0
Child Savings Plan   0 60,000
Total Variable Outflows 886200 889,510 741,988
Total Outflows 1396200 1,474,510 1,260,988
 
Cash Surplus + (or deficit - ) 423352 36,880 37,384
Allocation of Surplus  
Emergency Fund Savings  
Cash and Bank Balance 103352 36,880 37,384
Savings for short-term / Intermediate
financial goals  
Investment in Equity Shares 300000
Addition to Mutual Fund 20000
Savings / investing for long-term financial
security  
Balance Sheet
Ratios for Personal Financial Evaluation

Debt ratio: Shows the relationship between net worth and debt level.

Current Ratio: Indicates the level of current assets viz-a-viz the level of current liabilities. It is
important to have a high current ratio is order to maintain adequate liquidity.

Liquidity Ratio: This ratio indicates the number of months in which living expenses can be paid
off if an emergency arises.

Debt Payments Ratio: Indicates how much of a person’s earnings go for debt payments.
Indicates how the person’s earning goes for debt payments

Savings Ratio: This is how much per cent of your gross pay are you saving. This is an important
ratio as savings is one of the most important allocations of your total pay.

Debt to Assets Ratio: It is the percentage of the total assets of an individual that goes towards
payment of debt.

Debt to income Ratio: It is the percentage of the total income of an individual that goes towards
payment of debt.

2.69928
Debt Ratio 6
0.62845
Current Ratio 4
Liquidity Ratio 8.771
Debt Payments 25.9259
Ratio 3
22.4016
Savings Ratio 1