FINPLN 2183 1st Edition Lecture 4 Outline of Last Lecture I. Antioxidant and redox regulation of gene transcription Outline of Current Lecture II. Financial StatementsIII. Financial RatiosCurrent LectureFinancial Statements – assessments of the current status of a household’s financesIncome Statement – a statement that traces the flow of income and expenses for a period of time• Represents monthly budgets for an extended period of time, usually one year• Forecasting future income and expenses-planning tool• Not a backward looking journal of how you spent your moneyBalance Sheet – a statement that lists the current value of assets and liabilities at a point in time• Outlines the household’s assets (what it owns) and its liabilities (what it owes)• The difference represents net worth or equity • Represents a snapshot of assets and liabilities at a single point in time • Assets are generally listed in terms of how easily they can be converted tocash • Liabilities are generally listed in the order in which they are dueNet Worth – the difference between assets and liabilitiesAssets – what the household ownsThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.Liabilities – what a household owesLiquidity – the ease with which an asset can be converted into cashSolvency – that ability to repay debtsBudget – a short term financial plan showing income and expensesFinancial ratios – Provide benchmarks of your current financial position – Can then be used to spot trouble areas – Helpful to compare over time • LIQUIDITY RATIO – Liquid assets ÷ monthly living expenses – Gives you an idea of how many months you could continue to meet your expenses should your income cease – Experts suggest a minimum liquidity ratio between three and six months • DEBT TO TOTAL ASSETS RATIO– Total liabilities ÷ total assets – Measures ability to pay your debt, or solvency – Measures what percentage of your assets were acquired using borrowed funds • FINANCIAL ASSETS TO NET WORTH RATIO – Tells you what percentage of your net worth is made up of financial assets (vs. real assets)– The higher the ratio, the better– Over time, it indicates how well you’re doing toward your goal of wealth accumulation – The typical household’s ratio is around 30