Fundamentals & Insurance: Financial Statements Flashcards
(67 cards)
1
Q
Balance Sheet
A
- list of assets, liabilities, and NW
- snapshot at a moment in time
2
Q
Net Worth
A
Assets - Liabilities
3
Q
Cash & Cash Equivalents
A
- Cash, MM, CD<12months
4
Q
Invested Assets
A
IRA, brokerage, CD> 12 months
5
Q
Personal Use Assets
A
car, house, jewlery, furniture
6
Q
Liabilities
A
Credit Cards, Mortgage, auto loan, student loan
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)
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
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
10
Q
Invested Assets
A
- stocks, bonds, MFs, retirement accounts, business ownership, any assets maturing in > 12 months
- EE savings bonds
11
Q
Personal Use Assets
A
- Personal Residence, car, furniture, boat, clothing, any assets used to maintain clients lifestyle
12
Q
Liabilities
A
- debt obligations that are owed by client
- stated at principal outstanding
- either LT or ST
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
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
15
Q
Income Statement
A
- Statement of CFs
- list of income, savings, expenses, and taxes
16
Q
Income
A
- salary, interest, dividends, and business income
17
Q
savings
A
- is an outflow to retirement plans, education savings or any other savings account
18
Q
Expenses
A
- both fixed and varibale
19
Q
Fixed expenses
A
- mortgage, car payment, boat pmt, student loan pmt, any expenses that remain constant each month
20
Q
Variable expenses
A
- car repairs, entertainment expenses, utilities, charitable contributions, any expenses where the client can exercise control
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
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
23
Q
Categories of Ratios
A
- Liquidity
- Debt
- Performance
24
Q
Liquidity ratios
A
- measure the ability of a client to meet ST or current liabilities
25
Debt Ratios
- Debt Analysis
| - how well a person manages their overall debt
26
Performance Ratios
- asses the financial flexibility of the client, as well as the clients progress towards goals
27
Liquidity Ratios
- Current Ratio
| - Emergency Fund
28
Current Ratio
- 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
Emergency Fund
- client needs 3-6 months in NON discretionary (fluffy) expenses
= CA / monthly non-discretionary expenses
30
Nondiscretionary Expenses
- 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
Debt Ratios
- Housing Ratio
| - Housing & All other debt Ratio
32
Housing Ratio 1
Monthly Housing Costs (P+I+T+I) / Monthly Gross Income
33
P+I+T+I
P - Principal
I - Interest
T - Taxes (property)
I - Homeowners Insurance
34
Housing and All Other Debt Ratio
- 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
Adjustable Rate Mortgage (ARM)
- 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
Reverse Mortgage
- 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
Mortgage Calculations
- Monthly/annual mortgage payment
- interest expense deduction
- refinance with points
principal reduction
38
Performance Ratios
- Savings Ratio
| - ROI
39
Savings Ratio
- 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
ROI
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
Variable Rate Mortgage
- 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
Just laid off: what do you do
- file for unemployment IMMEDIATELY
43
Shift in Demand Curve
- Disposable income
- Income
- Taxes
- Savings
44
Shifts in Supply Curve
- CATs
- Competition
- Anything other than Price
- Technology
45
Monetary Policy
- Fed res
46
Fiscal Policy
- Congress
47
Federal Reserve
- controls the MS and influences interest rates
48
Congress
- controls spending and taxation, which influences the MS and interest rates
49
3 main goals of monetary policy
- maintain LT economic growth
- maintain price levels
- maintain employment
50
Increase MS
- decreases interest rates
- easing monetary policy
- buying gov securities (gov is GIVING you $ in exchange for securities)
51
Decrease MS
- interest rates increase
- Selling gov securities (gov is TAKING your $ in exchange for securities)
- tightening monetary policy
52
Monetary Policy's 4 tools
- REDO
- reserve requirement
- excess reserves
- discount rate (overnight interest rate that banks borrow from fed)
- open market operations
53
Fed Funds Rate
- interest rate at which member banks borrow from each other
54
Congresses 3 Tools
- DST Vision
- Debt management
- Spending
- Taxes
55
Fair Credit Reporting Act
- right to view credit report each year
56
Fair Debt Collection Act
- creditors cannot call you at work and can only speak to your lawyer as instructed
57
Fair Credit Billing Act
- 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
Truth in Lending Act
- must disclose total cost of financing
59
CARD Act
- must be 21 to open a credit card in your own name
60
FDIC
- 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
chapter 7 bankruptcy
relief through liqudiation
62
chapter 11
relief through reorg
63
chapter 13
relief through adjusting debts
64
debts NOT discharged at bankruptcy
- alimony and child support
- 3 years of back taxes
- student loans
- debts through fraud
65
protected assets from bankruptcy
- rollover IRAs - unlimited protection
- IRA/Roth - $1.3M protection
- Inherited IRA - NO PROTECTION
- alimony and child support
- pensions, life insurance, annutities
66
Federal Programs
- Special Ed
- Social security benefits
- benefits for disabled vets
67
state programs
- residential services
- transportation services
- respite care services
- family support services
- day program services
- employment services
