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The Overall Level of Debt
The level of the debt of this family is quite worrying since it forms close to three times as much as the total income. In the ratio is 0.394 of income to the total debt. It means that if the debts were to be recalled immediately by the creditors then, this ratio is the only portion that the income would support.
Meanwhile, if you compare the total debt with the assets available, and if the family were to be liquidated today and all the assets sold to repay the loans, then the assets would be able to cover the loans. The ratio of the total debt to loans is 0.138 which means that the debt forms up to 13.8% of the total assets owned by the family.
Mix of the Debt
The debt consists of the car loans and the mortgage for the house jointly owned by the family. The family does not have personal loans or any other loan put in any income generating activity. This kind of mix in debt does not match well with the principles of investments. The income of the family is stock investment but not using the debt.
The Mortgage Loan
The mortgage loan size is appropriate in comparison to the family income. They can manage the repayment especially a debt of 120 installments and with 7.5% interest rate. I believe the debt is bearable to the family expenses.
The Auto Loan
The loan is good but the time for repayment may result to high interest submission as compared to when the number of months was less than the provided 24. The interest rate of 8% constant is a desirable deal considering the ever changing economic status.
Car and House Insurance Adequacy
The insurance on the car is not adequate since the risks insured have not been stated as diversified apart from the PIP. This means the owner of the car is capable of losing huge amount as due to any other cause other than the insured factor of loss. The house loan is not bad since it is of a smaller proportion compared to value of the house.
The retirement planning and the nature of the investments that have been undertaken by the family are very adequate and preferred since they has given the family diversified source of income. With regard to their ages and the beneficiary amount of the investment, the family stands a chance to gain should they demand their retirement benefits.
Recommendations
The family has got expenses that eat in to the revenue they get from the salaries and other investments they possess. This calls for a revised standard and way of living which should be within their means. When they retire, it means that income from these other sources may not support the expenses as well as the loans to be repaid.
The family should also identify other sources of income to support the present one which is very necessary for the sustainability of the family.
| RATIOS FROM THE BALANCE SHEET | |||||
| LIQUIDITY RATIOS | |||||
| Current Ratio | Current assets/current liabilities | 29,2727 | |||
| Quick Ratio | Current asset- Inventory/current liabilities | 29,272711 | |||
| Income/Total Debt | 0,393 | ||||
| ACTIVITY RATIO | |||||
| Fixeed Asset turnover ratio=net sales/fixed asset | $0,152 | ||||
| FINANCIAL LEVERAGE RATIOS | |||||
| Total debt to Assets=Total debt/Total Equity | 0,138 | ||||
| PROFITABILITY | |||||
| contribution margin | Total Income/total revenue | 0,421 | |||
| Return on Assets | Net Income/Total Assets | 0,0641 | |||
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