How would you interpret the ratio?
Savings Show more Dollars Percent ASSETS Monetary Assets Cash on hand 260 0.08 Savings account 1500 0.48 Victors checking account 600 0.19 Marias checking account 700 0.23 Tax refund due 700 0.23 Rent receivable 660 0.21 Total monetary assets 4420 1.43 Tangible Assets Home 176000 56.79 Personal property 9000 2.9 Automobiles 11500 3.71 Total tangible assets 196500 63.4 Investment Assets Fidelity mutual funds 4500 1.45 Scudder mutual fund 5000 1.61 General Motors stock 2800 0.9 New York 2016 bonds 1000 0.32 Life insurance cash value 5400 1.74 IRA 6300 2.03 Real estate investment 84000 27.1 Total investment assets 109000 35.17 Total Assets 309920 100 LIABILITIES Short-Term Liabilities Dentist bill 120 0.04 Credit card debt 1545 0.5 Total short-term liabilities 1665 0.54 Long-Term Liabilities Sales finance company: automobile 7700 2.48 Savings and loan: real estate 92000 29.69 Total long-term liabilities 99700 32.17 Total Liabilities 101365 32.71 Net Worth 208555 67.29 Total Liabilities and Net Worth 309920 100 Table 2 Cash-Flow Statement for a Couple with Two ChildrenVictor and Maria Hernandez January 1 2008December 31 2008 Dollars Percent INCOME Victors gross salary $43180 65.42 Marias salary (part time) 12500 18.94 Interest and dividends 1800 2.73 Bonus 600 0.91 Tax refunds 200 0.30 Net rental income 7720 11.70 Total Income $66000 100.00 EXPENSES Fixed Expenses Mortgage loan payments $12000 18.18 Real estate taxes 2400 3.64 Homeowners insurance 760 1.15 Automobile loan payment 4400 6.67 Automobile insurance and registration 1191 1.80 Life insurance premiums 1200 1.82 Medical insurance (employee portion) 2980 4.52 Savings at credit union 1260 1.91 Federal income taxes 6800 10.30 State income taxes 3100 4.70 City income taxes 720 1.09 Social Security taxes 4260 6.45 Personal property taxes 950 1.44 Retirement IRAs 4000 6.06 Total Fixed Expenses $46021 69.73 Variable Expenses Food $ 4900 7.42 Utilities 2100 3.18 Gasoline oil maintenance 3100 4.70 Medical expenses 1245 1.89 Medicines 750 1.14 Clothing and upkeep 1950 2.95 Church 1200 1.82 Gifts 900 1.36 Personal allowances 1160 1.76 Childrens allowances 960 1.45 Miscellaneous 500 0.76 Total variable expenses $ 18765 28.43 Total Expenses $ 64786 98.16 Surplus (deficit) 1214 1.84 A) Using the data in the Hernandezes balance sheet calculate an investment assets-to-net worth ratio. How would you interpret the ratio? The Hernandez family appears to have too few monetary assets compared with tangible and investment assets. How would you suggest that they remedy that situation over the next few years? (b) Comment on the couples diversification of their investment assets. (c) Calculate the asset-to-debt ratio for Victor and Maria. How does this information help you understand their financial situation? How do their total assets compare with their total liabilities? (d) The Hernandezes seem to receive most of their income from labor rather than investments. What actions would you recommend for them to remedy that imbalance over the next few years? (e) The Hernandezes want to take a two-week vacation next summer and they have only eight months to save the necessary $2400. What reasonable changes in expenses and income might they consider to increase net income and make the needed $200 per month? Show less
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