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Personal Financial Planning Principles – Chapter 3
In-Class Assignment Case Study: Personal Financial Statements
This case study is to develop your ability to recognize, create and analyze the different types of
personal financial statement.
The case study represents 8% (8 marks) of your total marks. Complete the case study in the space
below the case study information.
Objectives: After completing this case study activity, you will be able to:
Explain the different types of personal financial statement.
Create personal financial statement.
Calculate financial ratio used to analyze personal financial statements.
Instruction:
1. Read the following case study.
2. Gather the information for the different types of personal financial statements, then create and
analyze these financial statements.
3. Answer all the Case Study questions listed below.
Introduction
Nikita Vasiliev, a 25 year-old application developer, has little knowledge of personal finance. She pays
her bills on time, and has save enough money to make the down payment on a condominium. Nikita
wants to develop good financial habits, and would like your analysis and recommendation on her
current situation.
In addition to the list of monthly expenses, assets and liabilities below, Nikita offers this explanation:
All utility bills for the month are unpaid, and therefore appear as a current liability (phone, cable
TV, internet, electricity, natural gas).
Auto and mortgage payments have been paid for the month. She lists “mortgage outstanding”
and “auto loan outstanding” to indicate the outstanding amount remaining to pay off each loan.
“Other expense, monthly” represents cash spent without a record to verify where
Nikita charges everything on her credit cards and pays the balances off monthly. Credit card
bills represent her average monthly balance.
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List of monthly expense, assets and liablities
Visa bill 500 Condomium maintence Fee 750
Stocks 8,000 Savings account 2,000
MasterCard bill 400 Chequing account 1,500
Monthly paycheque, net 4,700 Internet, monthly 62
Mortgage payment, monthly 1,100 Residence 295,000
Phone bill 40 Food, monthly 450
Cable TV bill 70 Auto 10,000
Investment account (bank) 2,500 Furnishings 7,000
RRSP 5,000 Mortgage outstanding 221,000
Car payments, monthly 450 Auto loan, outstanding 5,000
Electricity bill 60 Other personal property 2,000
Natural gas bill 70 Other expenses, monthly 250
Property taxes 175
Case Study Questions:
1. Prepare a personal cash flow statement and personal balance sheet for Nikita.
2. Calculate the current ratio, liquidity ratio, debt-to-asset ratio, and savings ratio associated with
Nikita personal financial statements.
3. Interpret the personal financial statements and ratios for Nikita.
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1.The personal cash flow statement of Nikita Vasiliev will show the cash inflows and outflows to show
her net cash flow for the specific period. It is really helpful in determining in which direction are the
finances heading. If monthly cash flow statements are prepared the finances can be easily and
accurately managed.
NIKITA VASILIEV
CASH FLOW STATEMENT
INCOME
Net monthly pay cheque $4700
TOTAL INCOME
EXPENSES
HOME
Mortgage 1100
Maintenance fees 750
Property tax 175
Food 450
TOTAL HOME EXPENSES 2475
AUTOMOBILE
Car Payments 450
TOTAL AUTOMOBILE PAYMENTS 450
UTILITY
Natural gas 70
Internet 62
Cable TV 70
Electricity 60
Phone bill 40
TOTAL UTILITY EXPENSES 302
CREDIT PAYMENTS
Mastercard 400
Visa 500
TOTAL CREDIT PAYMENTS 900
OTHER EXPENSES 250
TOTAL EXPENSES 4377
NET CASH FLOW $323
The cash flow statement shows that Nikita has an income of $4700 and her total expenses for the
month are $4377 which leaves a total balance of $323 in her account after paying all the expenses.
This is referred as the net income, which is calculated by deducting total expenses from total
income.Net income represents the amount of money that is left after deducting all the expenses have
been paid and can be used for saving, investing, or spending.
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NIKITA VASILIEV
BALANCE SHEET
ASSETS
Cash
Chequing account 1,500
Savings account 2,000
Investment account 2,500
Total Cash 6,000
Investments
Stocks 8,000
RRSP 5,000
Residence 295,000
Total Investments 308,000
Household Assets
Furnishings 7,000
Auto 10,000
Other Personal Property 2,000
Total Household Assets 19,000
TOTAL ASSETS 333,000
LIABILITIES AND NET WORTH
CURRENT LIABILITIES
Utilities
Phone 40
Electricity 60
Internet 62
Natural Gas 70
Cable 70
TOTAL UTILITY PAYMENTS 302
LONG TERM LIABILITIES
Auto Loan 5000
Mortgage 221,000
TOTAL LONGTERM LIABILITIES 226,000
TOTAL LIABILITIES 226,302
NET WORTH 106,698
The personal balance sheet of Nikita will shows the overall snapshot of her wealth at a specific period
in time. It’s summary of your assets($333,000) or what you own($106,698) and your liabilities or what
you owe(226,302). Also, by subtracting your total liabilities from your assets can give you your net
worth. Total assets would include all your investments, savings, cash deposits, and any equity that
you have in home, car or other similar assets. Total liabilities would include any debt, such as loans
and credit card debt. It is useful to determine financial stability.
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RATIOS:
1. Current Ratio= Liquid assets
Current Liabilities
Current Ratio= 6000
302
Current Ratio= 19.87
2. Liquidity Ratio= Liquid assets
Monthly expenses
Liquidity Ratio = 6000
4377
Liquidity Ratio = 1.37
3. Debt to asset ratio= Total liabilities
Total assets
Debt to asset ratio= 226,302
333,000
Debt to asset ratio= 0.679
4. Savings ratio= Total Savings during the period
Disposable Income during the period
Savings ratio= 323
4700
Savings ratio= 0.0687
INTERPRETITION OF THE PERSONAL FINANCIAL STATEMENTS AND RATIOS FOR NIKITA:
The majority of the individual's assets are tied up in the residence, which represents a significant portion of the total
assets. There is a healthy mix of cash, investments, and household assets, contributing to overall asset value. The
individual has both current and long-term liabilities, with the mortgage being the most substantial obligation. The auto
loan and utility payments constitute the current liabilities.The net worth of $106,698 indicates the individual's overall
financial position after accounting for liabilities. It represents the difference between total assets and total liabilities,
reflecting the individual's wealth accumulation. In summary, the individual has a considerable net worth, primarily
driven by the value of the residence and other assets. However, it's essential to manage liabilities effectively to maintain
and grow net worth over time.
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. Current Ratio: The current ratio measures a company's ability to pay its short-term liabilities with its short-term
assets.
. In this case, the current ratio is 19.87, which indicates that there are significant liquid assets available to cover
the current liabilities.
. Liquidity Ratio: The liquidity ratio evaluates the ability of an individual to cover monthly expenses with liquid
assets.
. A liquidity ratio of 1.37 suggests that there are sufficient liquid assets to cover monthly expenses, providing a
buffer against unexpected costs.
. Debt to Asset Ratio: The debt to asset ratio assesses the proportion of total debt relative to total assets,
indicating the level of financial leverage.
. A debt to asset ratio of 0.679 implies that approximately 68% of total assets are financed by debt, which is quite
high.
. Savings Ratio: The savings ratio determines the portion of gross income that is saved.
. With a savings ratio of 0.0687, approximately 6.87% of gross income is being saved, which suggests a modest
savings rate, but not sufficient if Nikita is planing to buy something.
ANALYZING THE DATA COLLECTIVELY:
. The high current ratio and liquidity ratio indicate strong liquidity and the ability to meet short-term obligations
comfortably.
. The debt to asset ratio indicates moderate leverage, suggesting that a significant portion of assets is financed by
debt.
. The savings ratio, while modest, indicates a commitment to saving a portion of gross income, which is a positive
financial behavior.
. Overall, based on the provided ratios, the individual seems to have good liquidity, moderate leverage, and a
modest savings habit. However, it's essential to consider individual financial goals and circumstances when
interpreting these ratios.
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