Joanne has provided you with her net worth statement and has told you her monthly net...

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.

Solutions

Expert Solution

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

jeff jeffy answered 2 years ago

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