Trimester 3, 2020/2021

PBF0014 Introduction to Personal Finance

Exercise 2: Chapter 2 Financial Health and Financial Plan

Question 1 (Trimester 1, 2016/2017)

a) Explain the usefulness of financial ratios in personal finances.

Financial ratios allow you analyze raw data in the balance sheet or income statement then
compare it to targets. Besides, ratios help you understand how you are managing financial
resources.

b) Joshua has recorded a total asset of RM116,000 and total liabilities of RM77,000. On the
other hand, Jonathan his younger brother has a total asset of RM120,000 and total
liabilities of RM80,000. Calculate the net worth for both brothers and determine who has
a better level of net worth.

Net worth Joshua = RM116000-RM77000 = RM39000

Net worth Jonathan = RM120000-RM80000=RM40000
Jonathan has a better level of net worth.

c) Implementing a financial budget is essential for an individual and it will provide a level of
savings needed to achieve ones goals. Explain the FOUR ways in implementing a cash
budget.

1) Put it in place for a month.

2) Compare actual expenditures in each category with budget amounts at the end of the
month.
3) Evaluate whether you change budget estimates or exert self-control?
4) Stick your desired budget for a month with an envelope system.

Question 2 (Trimester 3, 2016/2017)

a) There are a number of different types of assets. Provide FOUR major assets listed on the
personal balance sheet.
-monetary assets, investments, personal property, retirements plans

b) State the TWO purposes of using financial ratios. Give FOUR examples of financial
ratios.
Exp: current ratio, debt ratio, saving ratio, long-term debt coverage ratio.

c) Aliff and Angel are trying to figure out their current financial health. They have listed the
following items from their most recent statements:
Savings account: RM1,000
Checking account: RM2,000
Credit card balance: RM3,000
Car loan balance: RM12,000
Car (market value): RM8,000
Furniture (market value): RM4,000
Stocks and bonds: RM10,000
They will pay off their car loan in three years. Their gross household income is RM8,800
per month. They receive RM100 monthly in interest income from their investments.
Calculate their current net worth.

current net worth = (1000+2000+8000+4000+10000)-(3000+12000)=RM10000

Question 3 (Trimester 1, 2017/2018)
a) Balance sheet provides a snapshot of your financial status at a particular time. List and
explain TWO major elements of a balance sheet.
Assets-Your precession even if you owe money
Liabilities- Debt must be repaid in the future

b) Suppose that Fiona’s only assets are an automobile worth RM15, 000 and a current
account with a RM5, 000 balance. Her only liabilities are a student loan balance of RM2,
000 and a balance of RM8, 000 on her car loan. Calculate her net worth.
net worth=(15000+5000)-(2000+8000)=RM10000

c) Name the financial ratio to measure each item as follow:

i) Measure a person or company’s ability to pay off its short-term liabilities with its
current assets. Current ratio
ii) Measure the percentage of a person or company’s assets that are provided via debt.
Debt ratio
iii) Measure the percentage of a person’s disposable income that is saved. Saving ratio

Question 4 (Trimester 3, 2017/2018)

a) List THREE components of your personal balance sheet and TWO components of your
personal income statement.

b) Joanne has RM3,000 in a bank saving account, RM4,000 in fixed deposit, a car with a
current market value of RM28,000, and a house that she purchased for RM100,000 that
has a current market value of RM118,000. The current balance of her house mortgage is
RM81,000, she has one credit card with an outstanding balance of RM3,000, and a
PTPTN loan with a balance of RM6,000. What is Joanne's current net worth?
Question 5 (Trimester 1, 2020/2021)
a) Budgeting is important in developing your financial plan. Thus, a good understanding of
cash inflows and outflows, or what you make and spend is essential. Describe TWO ways
to increase your cash inflows and TWO ways to decrease your personal outflows.
Increase inflows through more income such as a pay increase or get another job. To
decrease outflow, cut expense on a variety of personal expenditures.

b) Describe TWO options that you can take in order to increase your liquidity during
emergencies.
Selling a car inexchange for cash
Selling stock in exchange for cash

c) Rahman just inherited RM30,000 cash from his grandmother. He also has RM4,000 in his
checking account and owns a car with a value of RM40,000. Rahman owes RM19,000 on
his car, RM12,000 on school loans and RM3,000 on his credit card. He earns an annual
disposable income of RM36,000 and saves RM1,800 yearly.
i) What is Rahman's net worth?
net worth= (30000+4000+40000) -(19000+12000+3000) =RM40000

ii) Calculate Rahman’s current ratio, debt ratio and saving ratio. Explain his financial
health based on each ratio that you have calculated.

current ratio= (30000+4000)/3000=34:3

debt ratio=(12000+19000+3000)/ (30000+4000+40000)=17:37
saving ratio=1800/36000=0.05