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GTPR Flashcards > Fundamentals & Insurance: Financial Statements > Flashcards

Fundamentals & Insurance: Financial Statements Flashcards

1
Q

Balance Sheet

A
  • list of assets, liabilities, and NW

- snapshot at a moment in time

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2
Q

Net Worth

A

Assets - Liabilities

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3
Q

Cash & Cash Equivalents

A
  • Cash, MM, CD<12months
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4
Q

Invested Assets

A

IRA, brokerage, CD> 12 months

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5
Q

Personal Use Assets

A

car, house, jewlery, furniture

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6
Q

Liabilities

A

Credit Cards, Mortgage, auto loan, student loan

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7
Q

Assets

A
  • property that is owned/partially owned by client
  • all assets are stated as FMV
  • 3 categories (cash/cash equivalents or Current assets, invested assets, Personal Use Assets)
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8
Q

FMV

A
  • price at which a willing buyer is willing to buy and the price at which a willing seller is willing to sell
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9
Q

Cash & CE, Current Assets

A
  • cash, checking, MM, CD < 12 months
  • includes later CDs set to mature every 6 mos
  • includes anything that the client expects to convert to cash within a year
  • does not include EE savings bonds
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10
Q

Invested Assets

A
  • stocks, bonds, MFs, retirement accounts, business ownership, any assets maturing in > 12 months
  • EE savings bonds
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11
Q

Personal Use Assets

A
  • Personal Residence, car, furniture, boat, clothing, any assets used to maintain clients lifestyle
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12
Q

Liabilities

A
  • debt obligations that are owed by client
  • stated at principal outstanding
  • either LT or ST
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13
Q

Current Liabilities

A
  • due within the next 12 months
  • includes interest unless already occurred
  • credit cards, taxes payable, any unpaid bills such as utilities, cable, phone bill
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14
Q

Long-Term Liabilities

A
  • remaining balance on any outstanding debt beyond 12 months

- outstanding balance on a loan for the clients house, car, boat

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15
Q

Income Statement

A
  • Statement of CFs

- list of income, savings, expenses, and taxes

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16
Q

Income

A
  • salary, interest, dividends, and business income
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17
Q

savings

A
  • is an outflow to retirement plans, education savings or any other savings account
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18
Q

Expenses

A
  • both fixed and varibale
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19
Q

Fixed expenses

A
  • mortgage, car payment, boat pmt, student loan pmt, any expenses that remain constant each month
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20
Q

Variable expenses

A
  • car repairs, entertainment expenses, utilities, charitable contributions, any expenses where the client can exercise control
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21
Q

Financial Statement Analysis

A
  • gives insight to a clients strengths and weaknesses
  • only shows a historical perspective, not future predictive
  • allows us to answer:

how well a client manages debt
how well a client is progressing toward his financial goal
how well the client is able to meet ST obligations

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22
Q

Ratio Analysis

A
  • gains additional insight into the financial situation and behavior of the client
  • generate questions for the client to answer to further gain insight
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23
Q

Categories of Ratios

A
  • Liquidity
  • Debt
  • Performance
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24
Q

Liquidity ratios

A
  • measure the ability of a client to meet ST or current liabilities
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25
Q

Debt Ratios

A
  • Debt Analysis

- how well a person manages their overall debt

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26
Q

Performance Ratios

A
  • asses the financial flexibility of the client, as well as the clients progress towards goals
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27
Q

Liquidity Ratios

A
  • Current Ratio

- Emergency Fund

28
Q

Current Ratio

A
  • Liquidity ratio that measures a clients ability to meet ST obligations
  • includes cash and CE that expire in less than 12 months

Current Assets / Current Liabilities

29
Q

Emergency Fund

A
  • client needs 3-6 months in NON discretionary (fluffy) expenses

= CA / monthly non-discretionary expenses

30
Q

Nondiscretionary Expenses

A
  • include only those expenses that do not go away if you lose your job
  • mortgage, utilities, food, car loan, property taxes, insurance premiums
  • do NOT include: payroll taxes, contributions to a retirement account
31
Q

Debt Ratios

A
  • Housing Ratio

- Housing & All other debt Ratio

32
Q

Housing Ratio 1

A

Monthly Housing Costs (P+I+T+I) / Monthly Gross Income

33
Q

P+I+T+I

A

P - Principal
I - Interest
T - Taxes (property)
I - Homeowners Insurance

34
Q

Housing and All Other Debt Ratio

A
  • should be < or = 36% of GROSS income
  • all other debt: auto, student loans, boat, CC, any other type of monthly debt

Monthly Housing Costs (P+I+T+I) + all other recurring debt payments / Monthly gross income

35
Q

Adjustable Rate Mortgage (ARM)

A
  • a 2/6 ARM means that the interest rate cannot increase more than 2% per year or 6% during the term of the loan
36
Q

Reverse Mortgage

A
  • the homeowner receives a monthly payment or lump sum from a bank while retaining the right to live in the house
  • repayment of the outstanding mtg occurs at the homeowners death
  • is appropriate to generate income for elderly homeowners
  • available if the homeowner is age 62 or older
37
Q

Mortgage Calculations

A
  • Monthly/annual mortgage payment
  • interest expense deduction
  • refinance with points
    principal reduction
38
Q

Performance Ratios

A
  • Savings Ratio

- ROI

39
Q

Savings Ratio

A
  • benchmark savings ratio target is 10-12% of GI if client starts saving before 32
  • if start saving at 45 or 50, then rate will be 20-25% of GI
  • contributions to 401k, profit sharing plan, and ER contributions increase savings rate
    Annual Savings (EE + ER contribs) / Annual Gross Income
40
Q

ROI

A

provides insight as to the likelihood of achieving goals

= (ending investments - beginning investments - savings - gifts received) / Average Invested Assets

savings = annual salary - fixed expenses - variable expenses
average invested assets = (beginning investments + ending investments) / 2

41
Q

Variable Rate Mortgage

A
  • most appropriate time to use this type of mortgage rate is when income is expected to significantly increase in the future or you anticipate living in the house for a short period of time
42
Q

Just laid off: what do you do

A
  • file for unemployment IMMEDIATELY
43
Q

Shift in Demand Curve

A
  • Disposable income
  • Income
  • Taxes
  • Savings
44
Q

Shifts in Supply Curve

A
  • CATs
  • Competition
  • Anything other than Price
  • Technology
45
Q

Monetary Policy

A
  • Fed res
46
Q

Fiscal Policy

A
  • Congress
47
Q

Federal Reserve

A
  • controls the MS and influences interest rates
48
Q

Congress

A
  • controls spending and taxation, which influences the MS and interest rates
49
Q

3 main goals of monetary policy

A
  • maintain LT economic growth
  • maintain price levels
  • maintain employment
50
Q

Increase MS

A
  • decreases interest rates
  • easing monetary policy
  • buying gov securities (gov is GIVING you $ in exchange for securities)
51
Q

Decrease MS

A
  • interest rates increase
  • Selling gov securities (gov is TAKING your $ in exchange for securities)
  • tightening monetary policy
52
Q

Monetary Policy’s 4 tools

A
  • REDO
  • reserve requirement
  • excess reserves
  • discount rate (overnight interest rate that banks borrow from fed)
  • open market operations
53
Q

Fed Funds Rate

A
  • interest rate at which member banks borrow from each other
54
Q

Congresses 3 Tools

A
  • DST Vision
  • Debt management
  • Spending
  • Taxes
55
Q

Fair Credit Reporting Act

A
  • right to view credit report each year
56
Q

Fair Debt Collection Act

A
  • creditors cannot call you at work and can only speak to your lawyer as instructed
57
Q

Fair Credit Billing Act

A
  • gives you 30 days to acknowledge receipt of billing dispute
  • can correct errors within 90 days
  • only charged $50 max to credit card company
58
Q

Truth in Lending Act

A
  • must disclose total cost of financing
59
Q

CARD Act

A
  • must be 21 to open a credit card in your own name
60
Q

FDIC

A
  • CASH ONLY
  • any deposit within the US is covered
  • any deposit payable outside of US is NOT covered
  • money markets, stocks, bonds, mutual funds are NOT covered
61
Q

chapter 7 bankruptcy

A

relief through liqudiation

62
Q

chapter 11

A

relief through reorg

63
Q

chapter 13

A

relief through adjusting debts

64
Q

debts NOT discharged at bankruptcy

A
  • alimony and child support
  • 3 years of back taxes
  • student loans
  • debts through fraud
65
Q

protected assets from bankruptcy

A
  • rollover IRAs - unlimited protection
  • IRA/Roth - $1.3M protection
  • Inherited IRA - NO PROTECTION
  • alimony and child support
  • pensions, life insurance, annutities
66
Q

Federal Programs

A
  • Special Ed
  • Social security benefits
  • benefits for disabled vets
67
Q

state programs

A
  • residential services
  • transportation services
  • respite care services
  • family support services
  • day program services
  • employment services

GTPR Flashcards (11 decks)

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