Financial Statements

Question 1

How are assets and liabilities shown on the balance sheet?

Answer 1

As their current FMV

Question 2

Current assets

Answer 2

• Able to be coverted to cash within the next 12 months

Question 3

Investment Assets

Answer 3

• Assets with maturity dates beyond 12 months into the future are included here
• Future defined benefit pension plan beneifts and SS benefits are NOT INCLUDED on balance sheet

Question 4

How are liablilities listed?

Answer 4

At their UNPAID balance (do not include interest)

Question 5

How are savings viewed on cash flow statement?

Answer 5

Typically as a discretionary expense (since it is techincally not obligatory)

Question 6

Current ratio

Answer 6

Current assets / current liablities

ratio > 1.0 is good

Question 7

Emergency fund ratio

Answer 7

Current assets / monthly nondisrectionary living expenses

Ratio > 3-6 months is good

Question 8

Retirement savings ratio

Answer 8

Household + employer retirement plan contributions / income

> 12% is good (0.12)

Question 9

Debt payments to income ratio

Answer 9

total debt payments / income

< 36% is good

Question 10

Long-term debt coverage ratio

Answer 10

income / long-term debt payments

> 2.5 is good

Question 11

Debt ratio

Answer 11

Total liabilities / total assets

< 40% is good (0.40)

Question 12

How do car loans show up on cash flow statement?

Answer 12

As a cash inflow (the loan proceeds)

Car purchase would be cash outflow