Question

In: Accounting

En Ramasamy and Puan Kamani are trying to figure out their current financial health. They have...

En Ramasamy and Puan Kamani are trying to figure out their current financial health. They have listed the following items from their most recent statements. They will pay off their car loan in three years. Their gross household income is RM3,800 per month. They receive RM75 month in interest income from their investments.

Savings account : RM1,200

Current account : RM800

Credit card balance : RM1,000

Car; loan balance : RM12,000

Car; market value : RM8,000

Furniture; market value : RM2,000

Stocks and bonds : RM10,000

a.What is their current net worth? (1 Mark)

b.Assuming that they have no current bills other than those that are listed, what is their current ratio? (1 Mark)

c.What is their debt ratio? (1 Mark)

d.Calculating current ratio will answer the question, "Do I have adequate liquidity to meet emergencies?" What questions do these financial ratios help to answer?

i.Debt ratio

ii. Savings ratio

Expert Solution

a.

Net worth = Total assets-Total Liabilities

Current assets
Savings Account	1200
Current Account	800
Total Current Assets	2000
Non Current Assets
Car	8000
Furniture	2000
Stocks and bonds	10000
Total Non current assets	20000
Total Assets	22000

Current Liabilities
Credit card Balance	1000
Total Current Liabilities	1000
Non Current Liabilities
Car Loan balance	12000
Total Non current liabilities	12000
Total Liabilities	13000

Net worth	=22000-13000 =9000

It is assumed that the stocks and bonds are Long term investments.

-------------------------------------------------------------------

(b)

=> Current ratio = RM 2000 / RM 1000 = 2 :1

---------------------

(C)

=> Debt ratio = RM 13000 / RM 22000 = 0.591 : 1

-------------------------

(D)

(I) Debt Ratio-

-What percentage of company's asset are provided by debt.

(ii) Savings Ratio-

-What percentage of after tax income are being saved.

ekkarill92 answered 2 years ago

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