Ratios for Evaluating the Financial ProgressRatioCalculationExampleLiquidity RatioMonetary assets divided by monthly expenses$$12,750/$$$7,977=1\mathrm{.}60$ ratio or about $11/2$ monthsAsset$-$to$-$Debt RatioTotal assets$/$total debt$$394,050/$$$101,320=3\mathrm{.}889$ or a $3\mathrm{.}9$ to $1$ ratioDebt$-$to$-$Income RatioAnnual debt repayments$/$gross income $100$$$20,400/$$$95,720=21\mathrm{.}31\%$Debt Payments$-$to$-$Disposable Income RatioMonthly nonmortgage debt payments$/$monthly disposable $($not gross$)$ income$$500/$$$6,102=0\mathrm{.}082$ or $8\mathrm{.}2\%$Investment Assets$-$to$-$Total Assets RatioInvestment assets$/$total assets$$170,800/$$$394,050=0\mathrm{.}433$ or $43\mathrm{.}3\%$

Respond to the following questions.

How would you interpret their investment assets to total assets ratio?

This is an $-$Select$-$acceptableunacceptableItem $1$ ratio for a couple with children.

The Hernandez family appears to have too few monetary assets compared with tangible and investment assets. How would you suggest that they remedy that situation over the next few years?

They $-$Select$-$shouldshould notItem $2$ use surplus in a given month or year to build monetary assets. They $-$Select$-$cancannotItem $3$ move funds from the nonretirement investment assets.

What are your thoughts on the Hernandez's liquidity ratio? How might they address any issues you see?

They $-$Select$-$needdon't needItem $4$ additional emergency funds. Victor and Maria $-$Select$-$couldcould notItem $5$ use the net gain from their cash$-$flow statement to increase the amount in savings.

Comment on the couple$$s diversification of their investment assets.

They $-$Select$-$cancannotItem $6$ refrain from investing in more real estate.

The Hernandezes seem to receive most of their income from employment rather than investments. What actions would you recommend for them to remedy that imbalance over the next few years?

Victor and Maria could make investments that pay $-$Select$-$higherlowerItem $7$ dividends and interest. Investment income could be increased once their investments are $-$Select$-$morelessItem $8$ diversified.

The Hernandez's have just been invited by friends to join on a two$-$week vacation next summer, and they have only eight months to save the necessary $$4,400.$ What reasonable changes in expenses might they consider to increase net surplus and make the needed $$550$ per month $($$$4,400/8)?$

The Hernandez's $-$Select$-$havedon't haveItem $9$ net surplus each month. They $-$Select$-$needdon't needItem $10$ cut expenses.