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Keeping forward motion is crucial to your journey as a 1st generation financially successful person. Your legacy is your family’s new financial trajectory. We are rooting for you, every step of the way! Cheers to your financial success, your mental well-being, and the pursuit of caring for your family for generations to come.
Business Calcs Applied to Personal Finances
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Financial ratios are how bankers, potential investors, financial analysts and creditors assess a business’s financial condition or health of the company.
Financial ratios are used to demonstrate whether you able to pay back a loan or provide insight as to the financial volatility should unforeseen circumstances threaten business operations.
These same financial ratios are helpful to gauge your household and personal finances, as well.
When you prepare a personal financial statement, ratios are very useful to analyze the data and spot significant trends using the same financial ratios used to assess a business’s financial condition.
Here are two business calculations you can use to analyze your personal, household finances at all money levels—
WORKING CAPITAL RATIO (%)
(Current Assets / Current Liabilities)
WORKING CAPITAL ($$)
(Current Assets — Current Liabilities)
Current assets are those assets you can convert into cash within one year or less.
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Current liabilities are those expected to be paid within 12 months or less.
The working capital ratio tells you whether your current assets can cover current liabilities. A higher ratio means there’s more cash-on-hand, which is generally a good thing! At minimum, the ratio should be 1.5 or higher. Working capital shows a dollar amount of the same.
Obviously, a low or negative working capital value or even a ratio less than 1, indicates financial peril ;-( because there's a high-risk in the ability to pay bills should unforeseen circumstances arise. SIMPLE:-)!
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