In: Finance
Joanne has provided you with her net worth statement and has told you her monthly net income is $5,000 and monthly expenses are $3,800.
Assets:
Chequing account $7,200
Non-registered money market fund $15,000 (emergency savings)
TFSA Account $69,500 (savings for down payment on a home)
Car $20,000
Liabilities:
Credit card debt $1,000
Student loan $41,000
Using the information she provided you, calculate her liquidity ratio. Your answer should be a whole number, to two decimal places.
Liquidity ratio shows how many months expenses can be beared from cash Assets if there is no income.
Liquidity ratio formula = Cash assets/Monthly expenses
Cash assets is Assets that is readily convertible in cash.
Chequing Account and non registered money market fund (emergency savings) is liquid assets or cash assets because these are readily convertible in cash.
Cash Assets=7200+15000
=22200
Liquidity ratio = 22200/3800
=5.842105263
So liquidity ratio is 5.84