How to Analyze Personal Financial Statements
Proper analysis of a personal financial statement gives you a picture of a client's net worth. The personal financial statement lists all the assets and liabilities of an individual. By analyzing the type and amount of a person's assets and liabilities, you can determine his net worth. Net worth is the total financial value of an individual based on his possessions. When analyzing a business client, you can also determine his net worth outside of his business.
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Instructions
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1
Separate a page into two columns. Name one column "assets" and the name the other column "liabilities."
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2
Tally the subject's assets in the left-hand column. Include cash, marketable and non-marketable securities, accounts receivable and the cash surrender value of his life insurance policy. List the values of any residential and real estate. Next, include the values of any businesses the borrower is involved in either directly or indirectly. Finally, list retirement accounts, personal property and any other assets that don't fit into the other categories.
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3
Tally the subject's liabilities in the right-hand column. Include bank loans, mortgages on residential and investment properties, home equity loans, auto loans and student loans along with any other liabilities that don't' fit into these categories.
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4
Total the figures in the left-hand column. The answer is the borrower's total assets
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5
Total the figures in the right-hand column. The answer is the borrower's total liabilities.
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6
Subtract total liabilities from total assets. The answer is the borrower's net worth.
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7
Add the subject's cash to his marketable securities. The answer is his liquid assets -- the assets most easily converted to cash.
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8
Add the values of the borrower's businesses. Subtract this figure from his net worth. The resulting figure is his outside net worth -- his total value independent of the businesses he owns.
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