This presentation talks about how implementing various financial ratios can help you make a strong financial plan. Blended with expertise of financial advisors you can actually analyze your current financial health.

1. 7 Ratios which will tell your
current Financial Health
www.arthayantra.com

2. 1. Liquidity Ratio
• It represents an individual’s ability to meet committed
expenses when faced with an emergency.
• Liquidity Ratio = Cash or cash equivalents
Monthly committed expenses
• While some of the financial planners define the liquidity ratio
as a ratio between liquid assets and net worth, the basic
liquidity ratio mentioned above is used in terms of analyzing
the existing emergency fund.
• It is a prescribed practice to maintain 3-6 months of expenses
as an emergency fund, which denotes that the ideal levels of
liquidity ratio ranges from 3 to 6.
To read complete article click: 7 Ratios which will tell your current Financial Health

3. 2. Asset to Debt Ratio
• It compares the assets accumulated by an individual against the
existing liabilities.
• Asset to Debt Ratio = Total Asset
Total Liabilities
• The total assets include the liquid and illiquid assets accumulated
over the years. The total liabilities term includes all forms of
liabilities such as home loan, car loan, outstanding credit card
balance etc.
• The ideal ratio varies based on the situation of the person. For a
middle income in early thirties who has just bought a new home,
this ratio is recorded lower. Similarly, for a person in his peak earning
phase this ratio is recorded higher. This ratio stands as relative
measure which helps in analyzing what you own vs. what you owe.
To read complete article click: 7 Ratios which will tell your current Financial Health

4. 3. Current Ratio
• This ratio represents the ability of an individual to service the short
term liabilities in case of any financial emergency.
• Current ratio = Cash or Cash equivalents
Short term liabilities
• The assets such as cash in hand, cash in bank and other such assets
which can be liquidated immediately are considered as cash or cash
equivalent component. The short term liabilities include all the debt
repayments that are to be made in the current year.
• The total EMI payments that are to be made in the current year,
credit card outstanding balance and other such obligations, which
are to be met in the current year, are considered when calculating
short term liabilities.
To read complete article click: 7 Ratios which will tell your current Financial Health

5. 4. Debt Service Ratio
• Debt Service Ratio represents whether the EMI payments
being made are at a comfortable level or not.
• Debt Service Ratio = Short term liabilities
Total income
• This ratio indicates the percentage of income being accounted
for debt repayment and similarly the percentage of income
left over for other mandatory household expenses and
savings.
• Lower the ratio, better the debt management state of an
individual.
To read complete article click: 7 Ratios which will tell your current Financial Health

6. 5. Saving Ratio
• This is one of the most common and simpler financial ratio. It
compares the monthly surplus being generated against the
total cash inflows.
• Saving Ratio = Monthly surplus
Monthly income
• Though the ratio looks familiar and simple, it gives us the
insights about how well our finances are being managed.
• It also represents our ability to achieve our future goals.
Higher ratio means better money management skills.
To read complete article click: 7 Ratios which will tell your current Financial Health

7. 6. Solvency Ratio
• Solvency ratio compares the net worth of an individual against
total assets accumulated.
• Solvency Ratio = Net worth
Total Assets
• Net worth of an individual is the difference between his total
assets and total liabilities. If the assets accumulated are worth
more than the liabilities one owes, net worth is positive.
• This ratio indicates the ability of an individual to repay all the
existing debts using existing assets in case of unforeseen
events.
To read complete article click: 7 Ratios which will tell your current Financial Health

8. 7. Investment Assets to Total Assets
• This ratio compares the liquid assets being held by an
individual against the total assets accumulated.
• Investment assets to Total Assets = Liquid Assets
Total Assets
• Investments in stocks, mutual funds or other such investments
which can be converted to cash easily are considered as liquid
assets.
• Apart from the liquid assets, total assets also include illiquid
assets such as real estate or other such investments which
require more time to convert to cash.
• One should at least hold 20% of the total assets in the form of
liquid assets.
To read complete article click: 7 Ratios which will tell your current Financial Health

9. THANK YOU!!
To read more such interesting articles, click
Blogs on Financial Planning
www.arthayantra.com