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3 Money ratios that can help manage your finances
Handling finances is a little tricky! But not if you learn the tricks of the trade - Money Ratios.
Money Ratios are like a torch on the foggy road, so they will teach you how to evaluate financial health.
What are Money Ratios?
Money Ratios refer to the financial perimeters which can be calculated based on the components of Personal Finances like debt, monthly expenditure etc.
Let’s learn about Money Ratios
1 - Liquidity Ratio helps you evaluate the cash position so as to understand the capability of the individual to cover the monthly expenditure in case of unforeseen events. It is calculated as below Liquidity Ratio = Cash / Monthly Expenditure Liquidity Ratio denotes how many months of income you have at disposal in case of contingency. Ideally, it is better to have a Liquidity Ratio of 5-7 for individuals who do not have a stable income.
2 - Solvency Ratio is helpful for those individuals who have debt (housing or otherwise) in their portfolio. The solvency ratio denotes whether the assets in your portfolio can pay off the debt liability. It is calculated as below Solvency Ratio = Net worth / Total Assets Net worth is calculated by deducting the liabilities from the assets. For e.g., if an individual has a loan of Rs.10 lakhs and has total assets of Rs. 20 lakhs including fixed deposits and real estate. In this case, Net Worth = 20 lakhs - 10 lakhs = 10 Lakhs. The solvency ratio will be 0.50 which means that assets can service the debts sufficiently.
3 - Debt to Income Ratio Debt to Income Ratio refers to Equal Monthly Instalments divided by monthly income. This denotes the individual’s ability to pay the monthly instalments of the debt with his monthly income. Debt to Income Ratio on the lower side is considered satisfactory by the lenders. The more the monthly income is, the lower is the Debt to Income Ratio.
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By FintooHandling finances is a little tricky! But not if you learn the tricks of the trade - Money Ratios.
Money Ratios are like a torch on the foggy road, so they will teach you how to evaluate financial health.
What are Money Ratios?
Money Ratios refer to the financial perimeters which can be calculated based on the components of Personal Finances like debt, monthly expenditure etc.
Let’s learn about Money Ratios
1 - Liquidity Ratio helps you evaluate the cash position so as to understand the capability of the individual to cover the monthly expenditure in case of unforeseen events. It is calculated as below Liquidity Ratio = Cash / Monthly Expenditure Liquidity Ratio denotes how many months of income you have at disposal in case of contingency. Ideally, it is better to have a Liquidity Ratio of 5-7 for individuals who do not have a stable income.
2 - Solvency Ratio is helpful for those individuals who have debt (housing or otherwise) in their portfolio. The solvency ratio denotes whether the assets in your portfolio can pay off the debt liability. It is calculated as below Solvency Ratio = Net worth / Total Assets Net worth is calculated by deducting the liabilities from the assets. For e.g., if an individual has a loan of Rs.10 lakhs and has total assets of Rs. 20 lakhs including fixed deposits and real estate. In this case, Net Worth = 20 lakhs - 10 lakhs = 10 Lakhs. The solvency ratio will be 0.50 which means that assets can service the debts sufficiently.
3 - Debt to Income Ratio Debt to Income Ratio refers to Equal Monthly Instalments divided by monthly income. This denotes the individual’s ability to pay the monthly instalments of the debt with his monthly income. Debt to Income Ratio on the lower side is considered satisfactory by the lenders. The more the monthly income is, the lower is the Debt to Income Ratio.
Visit us at https://www.fintoo.in
Contact us on - +91 9699 800 600
Join us on WhatsApp: https://bit.ly/Connect_on_Whatsapp
Follow us on
Facebook: https://www.facebook.com/fintooapp
Insta: https://www.instagram.com/fintoo.app/
LinkedIn: https://www.linkedin.com/company/1346...
Twitter: https://twitter.com/FintooApp
Blog: https://bit.ly/2KIDgGk
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