Your Financial Statements and Plans: Practicing Financial Statements

1
Chapter 2

• Your Financial Statements and Plans Practicing
  Financial Statements

2
Financial Statement Practice

• Net Worth Statement
• Cash Flow Statement

3
Financial Trends
4
Preparing Financial Statements

• Create list of needed information
• Assets and debts
• Income and expenses
• Collect information
• statements (e.g., checking, mutual funds, credit
  cards)
• bills (e.g., utilities, tuition, services)
• receipts (e.g., grocery, department store)

5
Preparing Financial Statements

• Separate information into categories
• Assets -- things you own
• Debts -- money you owe
• Income -- money coming in
• Expenses -- money going out (remember, this does
  not include checks to credit card companies)

6
Harry Doyle -- Basic Information

• Visa bill (average monthly payment) 355
• Stocks 5,500
• Money market account 2,700
• MasterCard bill (avg monthly payment) 445
• Monthly paycheck, net 2,400
• Mortgage payment, monthly 530
• Phone bill 85
• Cable bill 42
• Templeton mutual fund 1,800

Typical monthly charge. It is paid off monthly.
7
Harry Doyle -- Basic Information

• Retirement account 2,500
• Car payment, monthly 235
• Utility bill 180
• Savings account 2,100
• Checking account 825
• Auto insurance, qtrly, due this month 450
• Home 65,000

8
Harry Doyle -- Basic Information

• Food, monthly 225
• Auto value 9,000
• Furnishings value 2,000
• Baseball card collection 500
• Mortgage outstanding 52,000
• Auto loan outstanding 4,225
• Other personal property 1,800
• Other expenses, monthly 150

9
Separate info into categories

• Visa bill debt
• Stocks asset
• Money mkt fund asset
• MasterCard bill debt
• Monthly paycheck income
• Mortgage payment expense
• Phone bill debt expense
• Cable bill debt expense
• Mutual fund asset

10
Separate info into categories

• Retirement acct asset
• Car payment expense
• Utility bill debt expense
• Savings account asset
• Checking account asset
• Auto insurance debt expense
• Home asset

11
Separate info into categories

• Food, monthly expense
• Auto value asset
• Furnishings value asset
• Baseball card collection asset
• Mortgage outstanding debt
• Auto loan outstanding debt
• Other personal property asset
• Other expenses, monthly expense

12
Making the Net Worth Statement

• Monetary assets
• Checking account 825
• Savings account 2,100
• Money market fund 2,700
• Subtotal 5,625
• Financial Assets
• Mutual fund 1,800
• Stocks 5,500
• Subtotal 7,300

13
Making the Net Worth Statement

• Monetary assets 5,625
• Financial assets 7,300
• Retirement account 2,500
• Home value 65,000
• Auto value 9,000
• Baseball collection 500
• Furnishings value 2,000
• Other personal property 1,800
• Total Assets 93,725

14
Making the Net Worth Statement

• Utility bills due
• Phone 85
• Cable 42
• Utility 180
• Subtotal 307
• Credit card debt
• Visa 355
• MasterCard 445
• Subtotal 800

15
Making the Net Worth Statement

• Utilities due 307
• Credit card debt 800
• Auto insurance due 450
• Auto loan 4,225
• Mortgage 52,000
• Total Debt 57,782

16
Making the Net Worth Statement

• Total Assets Total Debt Net Worth
• 93,725 - 57,782 35,943

17
Annual Cash Flow Statement

• Paycheck 2,400 x 12 28,800
• Mortgage pmt 530 x 12 6,360
• Car payment 235 x 12 2,820
• Utilities (8542180) x 12 3,684
• Auto insurance 450 x 4 1,800
• Food 225 x 12 2,700
• Other 150 x 12 1,800
• Available to save 9,636
• Total expenses are 19,164 well use this
  later

18
Harrys Financial Status?

• Months living expenses
• Monetary assets/mo. Living expenses
• 5,625/1,597 3.52 months like it a little
  higher
• Savings ratio
• Available to save/income
• 9,636/28,800 33.46 seems too good to be
  true
• Solvency ratio
• Net worth/assets
• 35,943/93,725 38 very good

Compute monthly expenses from yearly
19,164/121,597
19
Questions? More Practice.
20
Burt and Emily Gordon

• Critical Thinking Cases 2.1 Textbook

21
Jim Pavlov

• Critical Thinking Case 2.2 Textbook