Case Study – Financial Statements

Assets, Liabilities and Net Worth

Mary has come to you for help preparing personal financial statements. She presents you with the following facts. Her assets and liabilities include:

$3,000 in a Checking account and $5,000 in a Savings account

Her Brokerage Account has $15,000 in Stocks

With her employer she has a 401K with a balance of $50,000.

She has cash value life Insurance with a $250,000 death benefit and a cash value of $25,000

Her home was purchased for $300,000 and has a mortgage balance of $250,000, currently worth $320,000.

A car purchased for $35,500 where the current blue book value is $15,000 and she owes $18,000 on the auto loan

Mary has a Student Loan originally for $60,000 with a current Principal Balance of 30,000

Lastly, she has Credit Card Balances of $8,500

Assets, Liabilities and Net Worth

Cash Flow Statement

Based on current income and expenses, Mary provides the following breakdown:

Her gross salary is $122,500 annually with Income Tax and FICA of $26,950

She has dividend income of $800 per year and interest income of $50 annually

Her mortgage payment is $1,700 monthly; property taxes are $4,000 per year

Mary’s auto payment is $500 a month

Her Homeowner’s insurance premium is $900 annually, and all other insurance products are around $2,000 annually

She has monthly expenses of $700 for food, $500 for transportation, $400 for clothing and personal, 500 for entertainment & vacation, $350 for medical and dental, $250 for utilities

Mary Pays $600 Monthly for Her Student Loan

Mary pays $600 monthly for credit card payments not separately categorized

Mary estimates Miscellaneous Expenses of about $5,000 by subtracting expenses she can identify and savings from her Total Inflows

Cash Flow Statement

Personal Financial Statement

Ratios – Part 1

Complete the Cash Flow and Net Worth Statements

How much can Mary Save Annually?

Team 1 – Net Worth Statement – Assets

Team 2 – Net Worth Statement – Liabilities and Net Worth

Team 3 – Cash Flow Statement – Inflows and Savings

Team 4 – Cash Flow Statement – Outflows

Personal Financial Statement

Ratios – Part 2

Calculate the following Financial Ratios:

a) Liquidity Ratio

b) Savings Ratio

c) Front End Ratio

d) Back End Ratio

e) Net Investment Assets to Net Worth

In your view, based on the statements and ratio analysis, briefly describe Mary strengths and weaknesses in financial position

Personal Financial Statement

Ratios – Part 3

Prepare a Pro Forma Cash Flow Statement 10 Years in the Future

You should apply inflation or escalation to line items as appropriate

How would this change Mary’s ability to save?

NET WORTH STATEMENT ASSETS LIABILITIES Cash/Cash Equivalents Liabilities Checking account $ – Credit card balance $ – Savings Account – Student Loan Debt – Money Market Account – Auto note balance – Life Insurace Cash Value – Mortgage Balance – Total Cash/Cash Equivalents – Total Liabilities – Invested Assets Brokerage Account – Business – IRAs – 401k or Vested Pension – Total Invested Assets – TOTAL LIABILITIES – Use Assets Residence – NET WORTH – Automobiles – Personal property – Total Use Assets –

TOTAL ASSETS – TOTAL LIABILITIES AND NET WORTH –

NET WORTH STATEMENT

ASSETS LIABILITIES

Cash/Cash Equivalents Liabilities

Checking account $ – Credit card balance$-

Savings Account – Student Loan Debt –

Money Market Account – Auto note balance –

Life Insurace Cash Value – Mortgage Balance –

Total Cash/Cash Equivalents – Total Liabilities –

Invested Assets

Brokerage Account –

Business –

IRAs –

401k or Vested Pension –

Total Invested Assets – TOTAL LIABILITIES-

Use Assets

Residence – NET WORTH –

Automobiles –

Personal property –

Total Use Assets –

TOTAL ASSETS –

TOTAL LIABILITIES

AND NET WORTH –

Cash Flow Statement Outflows Inflows Totals

INFLOWS Gross salaries $ 0 Dividend income 0 Interest income 0 Other Income 0 TOTAL INFLOWS $ 0 0

OUTFLOWS Savings and Investments $ 0 Fixed Outflows Housing $ 0 Property Taxes 0 Student Loan Payments 0 Auto Loan Payments 0 Insurance premiums 0 Total Fixed Outflows $ 0 Variable Outflows Taxes $ 0 Food 0 Transportation 0 Clothing/personal 0 Entertainment/vacation 0 Medical/dental care 0 Utilities/household 0 Credit card payments 0 Miscellaneous 0 0 Total Variable Outflows $ TOTAL OUTFLOWS 0

Cash Flow Statement

OutflowsInflowsTotals

INFLOWS

Gross salaries $ 0

Dividend income 0

Interest income 0

Other Income 0

TOTAL INFLOWS $ 00

OUTFLOWS

Savings and Investments$ 0

Fixed Outflows

Housing $ 0

Property Taxes 0

Student Loan Payments 0

Auto Loan Payments 0

Insurance premiums 0

Total Fixed Outflows$ 0

Variable Outflows

Taxes $ 0

Food 0

Transportation 0

Clothing/personal 0

Entertainment/vacation 0

Medical/dental care 0

Utilities/household 0

Credit card payments 0

Miscellaneous 0 0

Total Variable Outflows$

TOTAL OUTFLOWS 0