If you read my prior posts,you have learnt how to create your own personal cashflow statement and your personal balance sheet.
Today, I am going to touch on 8 FINANCIAL RATIOS that you can use to interpret your current financial standing.
I have created a mindmap, to help me recall the financial ratios.
1) Basic Liquidity Ratio
Cash/Near Cash
Monthly expenses
You must have a basic liquidity ratio of 3-6 times. It signifies your ability to pay for your expenses if anything were to happen to you.
2) Liquid Assets To Networth Ratio
Cash/Near Cash
Networth
Measures the proportion of networth an individual have in terms of cash or near cash. You need to have at least 15%.
3) Debt To Assets Ratio
Total Liabilities
Total Assets
You need to have less than 50%. If you have more than 50%, you do not have enough assets to pay off your total debts.
4) Solvency Ratio
Networth
Total Assets
It measures the long term solvency problem. The higher, the ratio, the better.
5) Debt Service Ratio
Total Debt Yearly Repayment
Annualised Take Home Pay
This ratio measures the proportion of take home income, used to make regular payment of debts. If it is lower than 35%, means HEALTHY.
6) Non Mortgage Debt Service Ratio
Total Non Mortgage Debt Yearly Repayment
Annualised Take Home Pay
This ratio measures the proportion of “take home income” used for regular payments of non mortgage debts.If it is lower than 15%, means HEALTHY.
7) Investment Assets To Net Worth Ratio
Invested Assets
Networth
This ratio compares teh value of invested assets with networth. If it is more than 50%, means HEALTHY.
8) Savings Ratio
Savings
Gross Income
This ratio calculate the proportion of your income, you set up for savings. You need to save at least 10% of your gross income.
I suggest you create your cashflow statement and your personal balance sheet and try the ratio out!
Its fun! Try it! 🙂
p.s. By the way, if you wish to discover a simple & halal way to create a positive monthly cashflow and calculate your net worth for FREE, then please click here…
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