Assignment Details Discuss the following in your initial post: How can you utilize financial ratios in...

Assignment Details

Discuss the following in your initial post:

How can you utilize financial ratios in your personal finances?
Why is it important for you to be aware of your personal financial ratios?
How can ratios help you with your personal goals?

Solutions

Expert Solution

Financial ratios as used in the corporate world are the ratios which help us in determing the performance of an organisation during a given period of time and compare it with the performance with the previous years or with the other organisations in the same field to analyse the position of the company.

In the same way financial ratios can be used in calculating the uses of the personal finance of the individual. Every individual has a level of earning, like the people who are employed in various organisations receive a fixed income for the work done by them. In relation to it there are expenses borne by the individuals to run their day to day activities and make purchases of the required items.

With the various financial ratios the individual can determine the usage of money earned on various expenditure, what amount of money is saved by the individual, what is the amount of liquid money with the individual as relation to the expenses and many more. These ratios helps in managing the personal financial needs and to analyse using the finance in better ways.

Financial ratios provide important information which can prove to be helpful in estimating the current financial health and improving it in the future.

Some of the important things that an individual can estimate using the financial ratios is :

Expenditure to Earning ratio (In percentage) : (Total Expenditure / Total Earnings) * 100

Here we can estimate the percentage of expenditure as against the total earnings, lower the ratio more is the benefit as the individual is spending less and saving more.

Savings to Earning ratio (In percentage) : (Total Savings / Total Earnings) * 100

Total Savings are calculated as = Total Earnings - Total Expenditure

Higher the savings to earnings ratio, more is it beneficial for the individual.

Likewise, we can estimate many ratios which determine the financial health of the person. So there financial ratios can help the individual with the personal goals, as any individual who has a goal to purchase a luxury car in the future, then the individual needs to evaluate his present position and if his savings are higher then he can easily afford to buy the luxury car, but if all the money that is earned is spent in fulfilling the day to day requirements, leading to less savings, then the individual may not be able to afford the car.

In this way the financial ratios are beneficial for both the individuals and the corporates.

jeff jeffy answered 1 year ago

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