Financial ratios as an aid to financial planning
By Neelima Shankar
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But too large a figure is an indicative that the person is not able to make appropriate investments of his wealth.

Thus, liquidity ratio = liquid assets (current assets)/net worth

Leverage ratios: These ratios are an indicator of the long term solvency condition of an individual. It gives an idea of the proportion of debt held by a person in comparison to his assets, also known as debt to asset ratio.

Thus, Debt to asset ratio = total debt/net worth

This ratio should decline with age of the person so that there is lesser amount of liability at old age.

Another ratio that can be useful to understand a person's financial strength is debt to income ratio. It gives an idea about debt held in comparison to a person's income.

Savings ratio: It is an indicative of the monthly savings of a person and is thus helpful in financial planning. For more details about financial planning read here.

Savings ratio = savings per month/income per month


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