1. What changes in the relationship of assets, liabilities, and owner’s equity would indicate improving personal financial health?

Each of these questions reflects the importance of personal financial planning. They demonstrate on a personal level the same types of financial issues facing businesses. Being able to pay bills at the end of the month is a matter of cash flow. Financing a major purchase such as a home requires taking on long-term debt. Planning for retirement requires increasing your personal net worth. Just as executives carefully study reports to plan for growth and profitability, individuals need to maintain financial records and develop expertise in financial analysis.

Financial ratios can be an important personal financial planning tool.

In order to use financial ratios you will need to prepare a balance sheet and an income statement. The following ratios provide useful information on your current status and guidance on what you can do to improve your personal financial health.