Financial Ratios-Module 8 Flashcards
Liquidity Ratio
Liquid Assets divide Monthly Expenses
Asset -to -Debt ratio
total assets (divide) total debt
Debt to Income Ratio
DTI
Annual Debt payments (divide) Annual gross Income
Debt Payments -to-Disposable Income Ratio
Monthly non-mortgage payments (divide) Monthly disposable income
(Do not include rent or mortgage in the Monthly non-mortgage payment)
Solvency Ratio
Total net worth (divide) total assets
Financial Ratio definition
Calculations designed to simplify evaluation of financial strength and process
Purpose of the Liquidity Ratio
Can I pay my bills on time and also weather a minor emergency?
Purpose of the Liquidity Ratio
Can I pay my bills on time and also weather a minor emergency?
What is the target for Liquidity Ratio that a client works towards?
target is 3.0
The purpose for the Debt to Asset ratio?
helps individuals put their debt level into perspective
The target for Debt to Asset ratio?
Greater than one
The Reason we do a Debt to Income ratio
helps individuals put their debt level into perspective and is mostly used when a client is applying for a loan, extending credit, and mortgage
What is the target for the Debt to Income ration?
below 36%
Mortgage less than 28%
What is the reason we do the work the Debt Payment to Disposable Income ration
What percentage of disposable income is going to their debt payment
What is the target % we are looking for when cacalcualig the Debt Payment/disposable ratio?
14% or lower
