Harry and Sally Jones asked for help analyzing their financial situation. The document constructs their balance sheet and cash flow statement based on provided financial information. It calculates various financial ratios to assess their well-being. The analysis finds their variable expenses are high at $16,200 annually. It recommends they focus on paying down debts and increasing emergency savings, as they currently do not have enough set aside if one loses their job. Their debt and debt service ratios also exceed recommended levels.

1. Project 2A: Financial Statements and Ratios
Harry and Sally Jones heard that you were taking the PFI/PFP 3301
courseat Texas Tech University. Due to their limited knowledge in
personal finance they are in a desperate need of your help! They want to
know how well they are doing financially and how could they improve
their situation.
Based on information they provided to you:
1. Constructtheir Balance Sheetand their CashFlow Statement.
2. Calculate their financial well-being through the use of Ratios.
3. Provide any recommendations if necessary.
Harry's Salary $ 24,000
Sally's Salary $ 24,000
Home value $ 200,000
Mortgage payment $ 12,000
2010 Lexus fair market value $ 38,000
Checking Account balance $ 900
Groceries $ 6,000
Investment Account balance (that holds mutual funds) $ 500
2010 Lexus loan payment $ 6,000
Past Due Utility Bill $ 200
Utilities $ 1,200
Credit Card balance $ 1,000
Entertainment $ 2,400
2010 Lexus loan balance $ 25,000
Stamp Collection $ 1,900
Gas $ 3,600
Mortgage balance $ 180,000
Credit Card payments $ 2,400
Jewelry $ 100
Savings set aside each year towards a new car $ 600
Tax Refund $ 1,000
Money Market Account balance $ 2,000
401(k) Account balance $ 500
Cash $ 100
Auto Insurance payments $ 960

2. Cash Flow Statement
(also known as Income Statement)
Harry and Sally Jones
January 1, 2014 - December 31, 2014
CASH INFLOWS
Income Annual Amount
Harry’s salary 24,000
Sally’s salary 24,000
Tax Refund 1000
Total Cash Inflows 49000
CASH OUTFLOWS
LIVING EXPENSES
Fixed Expenses Annual Amount
Mortgage payment 12000
2010 Lexus loan payment 6000
Auto Insurance payments 960
Total Fixed Expenses 18960
Variable Expenses
Groceries 6000
Utilities 1200
Entertainment 2400
Gas 3600
Credit Card payments 2400
Savings set aside each year towards a new car 600
Total Variable Expenses 16200
Total Living Expenses 35160
NET DISCRETIONARY CASH FLOW 13840

3. Harry and Sally Jones
Balance Sheet as of December 31, 2014
ASSETS LIABILITIES & NET WORTH
Monetary Assets Amount Current Liabilities Amount
Cash 100 Credit Card balance 1000
Checking Account balance 900 Past Due Utility Bill 200
Money Market Account balance 2000
Total Current Liabilities 1200
Total Monetary Assets 3000
Long-Term Liabilities
Investment Assets Mortgage balance 180000
2010 Lexus loan balance 25000
Investment Account balance (that holds mutual funds) 500
Total Investment Assets 500 Total Noncurrent Liabilities 205000
Retirement Assets
401(k) Account balance 500 Total Liabilities 206200
Total Retirement Assets 500
Net Worth 37800
Housing
Home value 200000
Total Housing 200000
Automobiles and Personal Property
2010 Lexus fair market value 38000
Jewelry 100
Stamp Collection 1900
Total Automobiles and Personal Property 40000
Total Assets 244000 Total Liabilities and Net Worth 244000

4. Based on your Financial Well-BeingAnalysis,howwell isHarry and Sally managing theirfinances?Explain.
On a scale from one to ten there managing skills are at a 4. Their variable expenses total out to 16,200 a year, the couple can make a few life changes to
bring that amount down.
Do you see any areas of concern? Ifyes, provide recommendationsonhow can they improve.
Yes there are some areas of concern. Harry and Sally currently do not have enough savings set aside in case one of them gets terminated or injured. The
couple should focus on paying off their current liabilities and begin setting money aside for an unexpected event.
Financial Well-Being Analysis
Harry and Sally Jones
RATIOS
Area Calculation Ratio Recommended
Living Expenses Covered Ratio Monetary Assets / Monthly Living Expenses 1.02 3 to 6 months
Debt Ratio Total Liabilities / Total Assets .84 less than 1
Debt Service to Income Ratio Annual Debt Payments / Gross Annual Income 38.69 less than 36%
Saving Ratio Annual Savings / Annual Living Expenses 8.53 10% or more
Investment Assets to Total Assets Ratio (Investment Assets + Retirement Assets) / Total Assets .409 10% or more