2. Financial Statements & Cash Flow Management

Front 1

Amortization

Back 1

The reduction of debt by regular, periodic payments of interest and principal sufficient to pay off a loan by maturity.

Front 2

Assets

Back 2

What a person owns.

Front 3

Balance Sheet

Back 3

A financial statement listing a client's assets, liabilities and net worth as of a specific point in time.

Front 4

Budget

Back 4

A financial statement listing expected income and expense for a future period of time.

Front 5

Call - Banking

Back 5

A demand to repay a secured loan, usually as a result of borrower default. When called, the loan principal amount is due immediately.

Front 6

Call - Bonds

Back 6

If a bond is callable, the issuer has the right to redeem the bond before maturity at a predetermined amount.

Front 7

Cash Flow Statement

Back 7

A personal financial statement that lists inflows and expenditures made by a person or family over a stated past period.

Front 8

Certificate of Deposit

Back 8

A fixed-income investment available through banks and savings and loan associations.Interest rates and maturities are fixed at the time of purchase.

Front 9

Commercial Paper

Back 9

Short-term promissory notes issued by major, well-established corporations. Used in large denominations.

Front 10

Credit Life Insurance

Back 10

Insurance that is purchased by a borrower with the intent of repaying a loan in the event of his or her death.

Front 11

Emergency Fund

Back 11

A reserve of cash and/or cash equivalents. Recommended amount three to six months of fixed and variable expenses.

Front 12

Money Market Deposit Account

Back 12

Available through savings and loan associations and banks. Earning rates are determined by the institution and they tend to be lower than rates for money market funds. Up to $100,000.

Front 13

Net Inflow

Back 13

Residual amount after subtracting outflows from inflows. It is the amount that the individual or family has not yet allocated to savings or expenses.

Front 14

Net Worth

Back 14

The residual value after liabilities are subtracted from assets.

Front 15

Personal Financial Statement

Back 15

The statement of financial position shows assets, liabilities, and net worth. Cash flow statements show inflow and outflows over a specified period in the past.

Front 16

Personal Property

Back 16

All property that is not land or items attached to the land.

Front 17

Savings Bonds

Back 17

Bonds issued by the U.S. government through banks and credit unions that pay either a fixed rate of interest semiannually or earn variable rates of interest.

Front 18

Use Assets

Back 18

An asset that is intended primarily for the personal use or enjoyment of the family, such as personal property, a residence, and automobiles.

Front 19

3 components in the statement of financial position

Back 19

1. Assets 2. Liabilities 3. Net Worth

Front 20

basic liquidity ratio

Back 20

cash and cash equivalent assets / monthly expenses

Front 21

liquid-assests-to-net-worth ratio

Back 21

liquid assets / net worth

Front 22

savings ratio

Back 22

savings / gross income

Front 23

debt-to-asset ratio

Back 23

total debt / total assets

Front 24

debt service ratio

Back 24

annual debt repayments / annual take-home pay

Front 25

nonmortgage debt service ratio

Back 25

the annual nonmortgage debt repayment / annual take-home pay

Front 26

net-investment-assests-to-net-worth ratio

Back 26

the value of net investment assets / net worth

Front 27

Define basic liquidity ratio

Back 27

number of months a household could continue to meet its expenses from existing cash and cash equivalent assets after a total loss of income. 3 to 6 months

Front 28

Define liquid-assests-to-net-worth ratio

Back 28

provides an indication of what amount of an individual's net worth should be in cash or cash equivalents. Minimum ratio of 15% is adequate.

Front 29

Define savings ratio

Back 29

indicator of what percentage of gross income a family or individual is setting aside for future consumption. 10% or higher healthy.

Front 30

Define debt-to-asset ratio

Back 30

helps measure liquidity. Can be used to measure a person's ability to pay off debts. 50% or less is safe

Front 31

Define debt service ratio

Back 31

show how much take-home pay is needed to repay debts. 35% or LOWER adequate. 45% or higher excessive. BETWEEN 35%-45% caution signal

Front 32

Define nonmortgage debt service ratio

Back 32

provides insight into what amount of after-tax income is going toward nonmortage debt. 15% or LOWER healthy. 20% his warning.

Front 33

Define net-investment-assets-to-net-worth ratio

Back 33

helps show how well an individual is advancing toward capital accumulation goals. Should have 50% as retirement approaches. Younger have 20%

Front 34

Two problems of using credit

Back 34

1. Overspending 2. Cost of credit

Front 35

Two reasons why creditors charge interest

Back 35

1. Creditor is assuming the risk that the borrower might not repay the loan. 2. Creditor loses the money while the borrower has it.

Front 36

5 areas that many lenders consider in evaluating a potential borrower

Back 36

1. character 2. Capital 3. Capacity 4. Collateral 5. Conditions

Front 37

Examples of inflows

Back 37

salaries, interest, dividends, alimony received

Front 38

Examples of Fixed Outflows

Back 38

loan/mortgage payments and insurance premiums

Front 39

Examples of Variable Outflows

Back 39

food, household, medical, and travel expenses