RATIOS AND COMMENTS

ASSET LIQUIDITY:

I. Liquid asset to take-home pay ratio = Liquid assets / Take-home pay

= 59,000/ 144,000
= 41%

COMMENT: For liquid assets to take-home pay ratio, the liquidity condition is at 41% which potrays En. Rashid will not have a serious liquidity problem

II. Current ratio = Liquid assets / Current liabilities

= 59000 / 5000
= 11.8 times @ RM11.80

COMMENT: In terms of current ratio, the ratio is 11.8 times and it indicates that En. Rashid and Pn. Wan is in a strong liquidity position.

LEVEL OF DEBT:

i. Debt ratio = Total liabilities / Total assets

= 65,000 / 880,000
= 7.39%

COMMENT: For debt ratio, En.Rashid is 7.39% which is below 60%. En. Rashid will not have difficulty obtaining a new loan because his debt ratio is not high.

ii. Debt service coverage ratio

= Take home pay/ Debt service charges

144,000/ 60,000
= 2.4 times @ RM 2.40

COMMENT: The ratio is more than 1 which potrays the family's ability to meet their current debt obligation. The higher the ratio the better because, it means the family has the ability to make payments of debt.

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