Assets And Liabilities: This Ratio Can Be An Indicator Of Your Financial Health
In order for any organization, including a family, to understand what their current financial status is, it is a good idea to generate financial statements in order to gain insights into the complete financial picture. One of the most important aspects of a financial statement is the rundown of current net assets, as well as all debts and liabilities so that the liabilities assets ratio can be determined. This ratio is a valuable indicator of whether the organization is moving toward amassing wealth or is mired in debt.
In addition to financial statements, a balance sheet is also a very valuable financial report, which can give a very quick, bottom-line snap-shot of the financial stability of a company, individual or family. A balance sheet typically will include everything that is considered to be property, or current assets, which contribute to wealth building. These types of total assets include such vehicles as stocks and bonds, equity in real estate holdings, cash on hand and other liquid assets, reliable cash flows, tools and equipment, and also intellectual property.
When looking at the liabilities column of a balance sheet, the debts and financial obligations that are currently owed to others are listed. Also, when figuring the liabilities assets ratio some accountants will include other items that are sometimes overlooked, such as pending taxes, professional licensing and required fees to stay in business, obligations entered into via contracts, and other types of arrangements that requires an eventual transfer of current assets to another party.
A simple example of formulating the ratio between liabilities and assets can be seen in looking at an individual’s particular situation. For someone who owns their own home, the picture of their current assets would include the fair market value of their home, deposits in all checking and savings accounts, the portfolio of all shares, stocks and bonds, investments in gold, silver, other coins, stamps, artwork, fine jewelry, and similar items of value that typically appreciate over time. In addition, total assets could also include retirement funds and expected pension rights, and any type of promissory note from which they are getting regular payments.
For individuals, other types of personal property can also be included in the listing of total assets. Some of these other assets would be things such as vehicles, boats, recreational vehicles, equipment and implements, household furnishings, and even clothing. However, these are the type of things which depreciate in value over time, and as a result, some accounting professionals will exclude such items from a balance sheet in order to provide a more accurate view of true household wealth.
Having balance sheets and complete financial statements worked up for organizations and individuals is to have clarity regarding their financial state. With clarity as the goal, it is vitally important to be completely and totally honest about the debt load and it can be useful to even underestimate total assets so that the most realistic picture of the liabilities assets ratio can be obtained.
Related posts:
- The Business Financial Information You Need For Funding
- The Debt To Income Ratio Reality Check
- Coming Out of the Recession Unharmed Through Assets Protection
- What Is Fundamental Share Analysis? Section I
- Retirement Planning To Protect Your Assets
Tags: assets, financial health, liabilities, personal finance
