Review the financial statements of Victor and Maria Hernandez and the financial ratios provided below.

Balance Sheet for a Couple with Two Children- Victor and Maria Hernandez, January 1, 2018
		Dollars		Percent
ASSETS
Monetary Assets
Cash on hand		1,200		0.3
Savings account		4,200		1.1
Victor's checking account		2,700		0.7
Maria's checking account		3,300		0.8
Tax refund due		700		0.2
Rent receivable		650		0.2
Total Monetary Assets		$     12,750		3.3%
Tangible Assets
Home		192,000		49.0
Personal property		9,000		2.3
Automobiles		9,500		2.4
Total Tangible Assets		$ 210,500		53.7%
Investment Assets
Fidelity mutual funds		4,000		1.0
Scudder mutual fund		4,500		1.1
Ford Motor Company stock		2,500		0.6
New York 2038 bonds		4,100		1.0
Life insurance cash value		5,400		1.4
IRA accounts		34,400		8.8
Real estate investment		114,000		29.1
Total Investment Assets		$168,900		43.1%
Total Assets		$392,150		100%
LIABILITIES
Short-Term liabilities
Dentist bill due		220		0.1
Credit card debt		1,600		0.4
Total Short-Term Liabilities		$      1,820		0.5%
Long-Term liabilities
Vehicle loan		6,400		1.6
Home mortgage loan		92,200		23.5
Total Long-Term Liabilities		$   98,600		25.1%
Total Liabilities		$100,420		25.6%
Net Worth		$291,730		74.4%
Total Liabilities and Net Worth		$392,150		100.0%

Cash Flow Statement for a Couple with Two Children- Victor and Maria Hernandez, January 1, 2018 - December 31, 2018
		Dollars		Percent
INCOME
Victor's gross salary		53,000		55.4
Maria's salary (part-time)		32,000		33.4
Interest and dividends		1,800		1.9
Bonus		1,000		1.0
Tax refunds		200		0.2
Net rental income		7,720		8.1
Total Income		$95,720		100.0%
EXPENDITURES
Fixed Expenses
Mortgage loan payments		14,400		15.0
Real estate taxes		4,800		5.0
Homeowner's insurance		1,200		1.3
Automobile loan payments		6,000		6.3
Automobile insurance and registration		2,100		2.2
Life insurance premiums		1,200		1.3
Medical insurance (employee portion)		2,800		2.9
Emergency fund savings		2,400		2.5
Revolving savings fund		1,800		1.9
Federal income taxes		10,000		10.4
State income taxes		2,600		2.7
City income taxes		600		0.6
Social Security taxes		6,500		6.8
Personal property taxes		1,020		1.1
Retirement IRAs		6,000		6.3
Total fixed expenses		$63,420		66.3%
Variable Expenses
Food		7,000		7.3
Utilities		3,600		3.8
Gasoline and maintenance		4,200		4.4
Medical expenses		3,400		3.6
Medicines		1,750		1.8
Clothing and upkeep		1,950		2.0
Church		2,400		2.5
Gifts		1,400		1.5
Personal allowances		3,000		3.1
Children's allowances		3,200		3.3
Miscellaneous		400		0.4
Total Variable Expenses		$32,300		33.7%
Total Expenses		$95,720		100.0%
SURPLUS (DEFICIT)		$  0		0.0%

Ratios for Evaluating the Financial Progress
Ratio		Calculation		Example
Liquidity Ratio		Monetary assets divided by monthly expenses		$12,750/$7,977 = 1.60 ratio or about 1 1/2 months
Asset-to-Debt Ratio		Total assets/total debt		$392,150/$100,420 = 3.905 or a 3.9 to 1 ratio
Debt-to-Income Ratio		Annual debt repayments/gross income × 100		$20,400/$95,720 = 21.31%
Debt Payments-to-Disposable Income Ratio		Monthly nonmortgage debt payments/monthly disposable (not gross) income		$500/$6,102 = 0.082 or 8.2%
Investment Assets-to-Total Assets Ratio		Investment assets/total assets		$168,900/$392,150 = 0.431 or 43.1%

Respond to the following questions.

 

1. 
   
   1. 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 the remedy that situation over the next few years?

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2. 
   
   1. What are your thoughts on Hernandez's liquidity ratio? How might they address any issues you see?
      

      The input in the box below will not be graded but may be reviewed and considered by your instructor.

       

       

3. Comment on the couple’s diversification of their investment assets.
   

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4. 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?
   

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5. The Hernandezes want to take a two-week vacation next summer, and they have only eight months to save the necessary $3,400. What reasonable changes in expenses might they consider to increase the net surplus and make the needed $425 per month ($3,400/8)?
   

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