Individual Assignment A

Finance
Professor: John Lombard
Submitted by: John
99xxxxxxx
 Personal Cash Flow Statement
Category Amount
Income $3,600
Expense:
Mortgage payment 1,410
Groceries 288
Car Loan payment 532
Car maintenance 280
Utilities 120
Recreation 480
Total Expense $3110
Net Cash Flows +490

Personal Balance sheet

Assets

Liquid Assets

(i) Cash in Bank 600

(ii) Clothing owned 540

Total Liquid Assets 1140

Household Assets

(iii) House 350,000

(iv) Car 18,000
(v) Furniture 14,000

Total Household Assets 382000

Total Assets 383,140

Liabilities

Current Liability

(i) Credit Card Balance 11,160

Total Current Liability 11,160

Long term liability

(ii) Mortgage 217,200

(iii) Car Loan 12,000

Total Long-term liability 229,200

Total Liability 240,360

Net worth 142,780

i)Savings rate

Savings Rate = (Net Cash Flow / After-tax Income) * 100

Net Cash Flow = 490 (from the Personal Cash Flow Statement)

After-tax Income = 3,600 (from the Personal Cash Flow Statement)

Savings Rate = (490 / 3,600) * 100 = 13.61%

Comment: A saving rate of 13.61% is generally considered good. It means that out of total income, LISA
is saving approximately 13.61%. This shows a responsible approach to saving and working towards
financial stability.

(ii) Liquidity Ratio:

Liquidity Ratio = (Liquid Asset / Monthly Expenses)

Cash in Bank = 600 (from the Personal Balance Sheet)

Monthly Expenses = Sum of Expenses (excluding Mortgage Payment) from the Personal Cash Flow
Statement

Monthly Expenses = 288 + 532 + 280 + 120 + 480 = 1,700

Liquidity Ratio = (600 / 1,700) * 100 = 35.29

Comment: A liquidity ratio of 35.29% indicates that you have approximately 35.29% of your monthly
expenses covered by your cash in the bank. This means LISA have a reasonable level of liquidity to meet
your immediate financial obligations.

(iii) Debt-to-Asset Ratio:

Debt-to-Asset Ratio = (Total Liabilities / Total Assets)

Total Liabilities = 240,360 (from the Personal Balance Sheet)

Total Assets = 383,140 (from the Personal Balance Sheet)

Debt-to-Asset Ratio = (240,360 / 383,140) *100 = 62.8%

Comment: A debt-to-asset ratio of 62.8% suggests that a significant portion of your total assets is
financed by debt. This means that approximately 62.8% of your assets are funded through liabilities.

Hence it is a poor debt-to-asset ratio.

(i) Reduce Debt: The debt-to-asset ratio of 62.8% indicates a relatively high level of debt.
Consider developing a plan to reduce and manage debt effectively. Explore strategies such as
making extra payments towards high-interest debts, refinancing loans to get better interest
rates, or prioritizing debt repayment based on interest rates or balances. Lisa should focus
on paying down her debts, starting with high-interest debts like credit cards and car loans.

(ii) Increase Savings Rate: While a saving rate of 13.61% is good, consider gradually increasing it
over time. Setting a specific savings goal or allocating a higher portion of the income towards
savings can help build a stronger financial cushion and work towards long-term financial
goals. She can use that money in different short-term investments to generate a passive
income.

(iii) Track and review expenses: Lisa can continue to monitor her expenses and identify areas
where she can cut off the monthly expenses, she can negotiate better deals and wait for
discounts before going out shopping.

(iv) Backup Money: She start saving a little amount from her monthly income to create some
sort of a backup so that whenever she needs an emergency money, she don’t have to take a
loan and hence she could save interest payment on that loan