Reference no: EM132709805
For this assignment, assume that you were discussing what you learned in this module with a friend, and they were so impressed with your knowledge that they asked you to help them evaluate their personal financial strength and progress through ratio analysis. They completed their own budget and balance sheet and provided you with the following information:
CategoryAmountDebt Payment (with mortgage)$1,800 per monthDebt Payment (without mortgage)$750 per monthExpenses$2,600 per monthIncome - Gross$4,800 per monthIncome - Disposable$3,700 per monthMonetary Assets$15,000Total Assets$75,000Total Debt$55,000Total Net Worth$20,000
Respond to the following using the above information
-Determine if your friend has enough money to pay for emergencies by answering the following related to the Liquidity Ratio:
-Describe the purpose of this ratio.
-Indicate which of the items from the above table that you will use to compute this ratio and which report that each item originated from (i.e. budget and/or balance sheet).
-Calculate this ratio by showing all of your work.
-Assuming that it would be desirable to fund at least 3-6 months of living expenses in the event of an emergency, does your friend have enough money available to meet this goal?
-Determine if your friend is paying too much for non-mortgage debt by answering the following related to the Debt Payments-to-Disposable Income Ratio:
-Describe the purpose of this ratio.
-Indicate which of the items from the above table that you will use to compute this ratio and which report that each item originated from (i.e. budget and/or balance sheet).
-Calculate this ratio by showing all of your work.
-Assuming that a ratio of 14% or lower is preferred by creditors, is your friend spending too much on their non-mortgage debt?