For this assignment, assume that you were discussing what you learned in this module with a friend, and they were so impressed with your knowledge that they asked you to help to evaluate their personal financial position. They completed their own Balance Sheet and Income and Expense Statement with another friend and provided key information as follows $($in alphabetical order$)$:

Category

Amount

Annual After$-$Tax Income

$$52,500$

Cash Surplus

$$7,200$

Monthly Gross $($Before$-$Tax$)$ Income

$$6,200$

Net Worth

$$30,000$

Total Assets

$$165,000$

Total Current Debts

$$11,800$

Total Liquid Assets

$$18,500$

Total Monthly Loan Payments

$$850$

Respond to the following using the above information

Describe the components of personal financial statements and their role in the financial planning process by addressing the following:

Balance Sheet:

Describe the purpose of this statement along with its three components in the order in which they appear in this report.

For the first two components, provide two examples of the categories that would be reported.

Finally, indicate if the information presented is in the form of actual or estimated amounts.

Income and Expense Statement:

Describe the purpose of this statement along with its three components in the order in which they appear in this report.

For the first two components, provide two examples of the categories that would be reported.

Finally, indicate if the information presented is in the form of actual or estimated amounts.

Budget:

Describe the purpose of this statement along with its three components.

Describe how this report is similar to and$/$or different from an Income and Expense Statement.

Using the information provided by your friend in the above table, evaluate personal financial progress utilizing key personal financial ratios by addressing the following:

Debt Service Ratio:

Discuss the purpose of this ratio and indicate how it is utilized to evaluate personal financial progress.

Calculate your friend$$s ratio, label your work, and provide an interpretation of their results

If $35\%$ is considered a manageable level of debt, do you think that your friend will have any problems meeting their loan payments on time? Explain why or why not.

Liquidity Ratio:

Discuss the purpose of this ratio and indicate how it is utilized to evaluate personal financial progress.

Calculate your friend$$s ratio, label your work, and provide an interpretation of their results.

If creditors consider $2\mathrm{.}0($two years$)$ to be a minimum acceptable liquidity ratio before they will grant a loan, do you think that your friend will have any problems obtaining a loan? Explain why or why not.

Savings Ratio:

Discuss the purpose of this ratio and indicate how it is utilized to evaluate personal financial progress.

Calculate your friend$$s ratio, label your work, and provide an interpretation of their results.

Visit the Bureau of Economic Analysis Personal Savings Rate section of their website and view the most recent $$Personal Savings Rate$$ for the average American. Is your friend above or below average? If they are below average, provide one suggestion as to how they could improve this ratio in the future.

Solvency Ratio:

Discuss the purpose of this ratio and indicate how it is utilized to evaluate personal financial progress.

Calculate your friend$$s ratio, label your work, and provide an interpretation of their results.

Based on this result, if there is a risk that the value of your friend$$s assets could decrease by $20\%,$ should your friend be concerned? Explain why or why not.