1.2 Fin Stmt & Cash Flow

Question 1

Cash / Equivalents

Answer 1

Cash, Checking; MM Deposit, MM Mutual Fund, Savings, CDs (close to maturity), Laddered CDs

Question 2

Investment Assets

Answer 2

LI CVs, Pension, IRA, Invmt R/E, Invmt Collectibles, Var/Fxd Annuities, Bsns Int, Mutual Funds, Stocks/Bonds

Question 3

Use Assets

Answer 3

Psnl Property, Home, Psnl Collectibles, Vac Home, Autos

Question 4

Liabilities

Answer 4

CCs, Psnl Loans, Auto Loans, Mortgage

Question 5

Book Value

Answer 5

Uses balance sheet; assets minus liabilities = net worth

Question 6

Capitalization of Income

Answer 6

Projected flow of income can be converted to present value; if bsns generates income, use capitalization rate (multiply) for capitalized value.

Question 7

Pro Forma

Answer 7

Projects expected results; estimates excess income over expenses. Allows owner to plan invmt / spending. At end of yr, fin stmt compared to see if projections realized.

Question 8

Budgeting

Answer 8

Estimating amount received and spent; keep for 12 months, typically. Should be flexible, simple, estimate unknowns and variables.

Question 9

Emergency Fund

Answer 9

Kept in checking accounts, gov’t MM accounts, CDs (less than 90 days to maturity), savings, laddered CDs (less than 180 days to maturity). 2 income sources - use 3-month target. 1 income source, use 6-month target.

Question 10

T-Bill

Answer 10

A short-term debt obligation backed by the U.S. government with a maturity of less than one year. T-bills are sold in denominations of $1,000 up to a maximum purchase of $5 million and commonly have maturities of one month (four weeks), three months (13 weeks) or six months (26 weeks).

Question 11

T-Note

Answer 11

A marketable U.S. government debt security with a fixed interest rate and a maturity between one and 10 years. Treasury notes can be bought either directly from the U.S. government or through a bank.

When buying Treasury notes from the government, you can either put in a competitive or noncompetitive bid. With a competitive bid, you specify the yield you want; however, this does not mean that your bid will be approved. With a noncompetitive bid, you accept whatever yield is determined at auction.

Question 12

Debt Management Ratio

Answer 12

Housing Expenses: PITI <36%

Question 13

Credit card fraud limit paid by client

Answer 13

$50

Question 13

Liquidity or Current Ratio

Answer 13

Current Assets / Current Liabilities