Gupta Final Doc

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GUPTAS -PERSONALFINANCIAL STATEMENTS

AND PLANS

11/19/2010IMG-3

Personal Wealth Management

Submitted To: Prof. Vinay DuttaSubmitted By: Group No. 8

Anand Kumar (93009)

Jharna Talreja (93019)

Ravindra Kumar (93039)


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Table of Contents

Introduction to Case Study....................................................................................................................... 3

Objective................................................................................................................................................. 3

Methodology ........................................................................................................................................... 3

Personal Financial Goals.......................................................................................................................... 4

Current Year Statements and Future Years Projections............................................................................. 7

Cash Flow Statement ........................................................................................................................... 7

Balance Sheet ...................................................................................................................................... 9

Ratios for Personal Financial Evaluation ................................................................................................ 10


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Introduction to Case Study

The case study aims at developing personal financial statements and plans for the Gupta family

which consists of Sunil Gupta who is an Assistant Manager with a KPO and his wife Nishi

Gupta who is a fashion designer. Mrs Gupta has learned that she is pregnant and this makes them

to think over their savings and expenses patterns. Up till now they have lived a comfortable life

in which all bills were paid on time, they used to go on trips , recreation , entertainment and other

such luxuries. Mrs Gupta is concerned about how they will manage the finances after the birth of

their first child as she would be quitting her job soon.

Nishi is pondering how they will manage their income in the future years. She is also

contemplating if she would be required to join her job back again after some time. Sunil has

suggested that they would reduce their spending on luxuries, have ample amount of savings to

draw from and also sell some of their shares in case of an emergency. Despite all the arguments,

Nishi feels the need for review of financial condition in order to do some serious planning.

Objective

y To understand the process of creating and evaluating personal financial statements suchas cash flow statement, balance sheet and budget and use of this budget for monitor and

control spending.

y To understand calculation of personal financial ratios and interpret the same.

Methodology

The following aspects have been covered

1) Understand the profile of the couple, their current and future plans and theirdemographics.

2) With a view of their profile, charting the short, medium and long term personal financialgoals for the two of them.

3) Preparing a budget for the current financial year and understanding the degree of variancebetween the actual and budgeted allocations.

4) Calculating various relevant personal financial ratios for the couple and assessing thefinancial position of the couple in the view of these ratios.


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Personal Financial Goals

The Gupta familys short term, medium term and long term plans are described below in

SMART format. These goals have been set keeping in mind the current financial position as well

as the future requirements of the family.

Short Term Goals

Goal 1: Child birth expenses

Specific Child birth expenses.

Measurable Save an amount of Rs 100,000 for the hospital expenses towards maternityexpenses.

Accurate Same as above.

Relevant This is required as the couple is going to have a baby in next six months. The

amount has been decided keeping in mind the current lifestyle of the couple.

Time Next 6 months.

Goal 2: Reduce recreational and entertainment expenses

Specific Reduce recreational and entertainment expenses.

Measurable Reduce the amount on trips abroad to 0 for the coming years and the

entertainment expenses to half.


Relevant This is required as the couple is going to have an extra family member and theNishi Gupta is also going to leave her job for the time being.

Time Next 12 months.

Goal 3: Credit card repayment

Specific Credit card repayment.

Measurable Repay outstanding credit card payment and bring down the balance to Rs. 0.


Relevant Credit card outstanding attracts an annual interest rate of around 36% which isvery high by any standards. Hence this amount has to be repaid as soon as

possible.


Intermediate term goals

Goal 1: Payoff car loan

Specific Payoff car loan.

Measurable Repay outstanding credit card payment of Rs. 86,000.


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Relevant The car loan outstanding has to be repaid as the amount remaining is very lessand it will lead the family to have liquidity.


Goal 2: Home renovation

Specific Home renovation.

Measurable A sum of Rs. 100,000 has to be set aside for the renovation of the house.

Accurate Rs. 25,000 a year needs to saved for this.

Relevant The family is going to have a child in the house so it is expected that they willneed to renovate the house after a period of time.

Time Next 4 Years.

Goal 3: Increase cash-in-hand

Specific Increase cash-in-hand.

Measurable A sum of at least Rs. 30,000 a year has to be saved as cash-in-hand.

Accurate Rs. 30,000 a year needs to saved for this. The saving rate should be increased in

proportion with inflation rate.

Relevant Cash provides liquidity for any family and is required for day to day activities.

Time Next Year onwards.

Long Term Goals

Goal 1: Home loan repayment

Specific Saving for home loan repayment

Measurable In the long term they have to keep saving an amount equal to annual instalmentpayable towards the home loan.

Accurate Towards the later years, the component of EMI towards principal goes up, whileinterest component goes down, they have to save in order to keep fulfilling their

fixed commitment towards the loan in order to pay off the loan on time.

Relevant Same as above.

Time Within 10 years from now.

Goal 2: Taking life insurance cover

Specific Take life Insurance cover for self and family.

Measurable They have to take life insurance for self as well as family keeping in view thefuture uncertainties. The insurance has to be in tune of around 40-50 Lac looking

at their social status and yearly income.

Accurate Rs. 75,000 a year has to be provided for taking the insurance.


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Relevant The insurance is a basic requirement for a family.

Time Starting now for next 20 years.

Goal 3: Savings for childs education

Specific Savings for childs education

Measurable It is assumed to have around Rs 20 Lacs for childs higher education.

Accurate To save Rs. 5000 per month.

Relevant Building of a corps towards childs higher education.

Time Within 20 years from now.


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Current Year Statements and Future Years Projections

Cash Flow Statement

Sunil and Nishi

Gupta

Current Year

March 31,

2011 31-Mar-12

Income (Cash Inflows) Rs. Rs. Rs.

Salary

Sunil Gupta 1440000 1656000 1821600

Nishi Gupta 1050000 350000 0

Total 2490000 2006000 1821600

Less:

Income Tax 504000 433,630 425,000Social Security 204000 160,480 145,728

Total Deductions 708000 594,110 570,728

Take-Home pay 1782000 1,411,890 1,250,872

Interest earned on Savings 1552 4500 2500

Income from Investments 36000 45000 45000

Redemption of Mutual Funds/ Equity Shares - 50000 0

Total Income 1819552 1,511,390 1,298,372

Cash Outflows

Fixed Expenses

Home loan payment 376000 376,000 376,000

Home insurance premium 32000 32,000 32,000

Car insurance premium 16000 16,000 16,000

Car loan payment 86000 86,000 20,000

Life Insurance Premium 0 75,000 75,000

Total Fixed Outflows 510000 585,000 519,000

Variable Expenses

Food and Clothing 260000 300000 300000

Utilities 79600 81988 81988

Telephone 25600 26368 25000

Medical Expenses 24000 45000 30000

Transportation 112000 80754 75000

Trip to US and Canada 200000 0 0

Recreation and Entertainment 160000 80000 80000

Household Furnishings 10,000 10,000

Credit Card and Personal loan repayment 115,400 0


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Home renovation 25,000

Miscellaneous Payments 25000 25,000 30,000

Child Care Expenses 25,000 25,000

Child Birth Expenses 100,000 0

Child Savings Plan 0 60,000

Total Variable Outflows 886200 889,510 741,988Total Outflows 1396200 1,474,510 1,260,988

Cash Surplus + (or deficit - ) 423352 36,880 37,384

Allocation of Surplus

Emergency Fund Savings

Cash and Bank Balance 103352 36,880 37,384

Savings for short-term / Intermediate

financial goals

Investment in Equity Shares 300000

Addition to Mutual Fund 20000Savings / investing for long-term financialsecurity


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Ratios for Personal Financial Evaluation

Debt ratio: Shows the relationship between net worth and debt level.

Current Ratio: Indicates the level of current assets viz-a-viz the level of current liabilities. It isimportant to have a high current ratio is order to maintain adequate liquidity.

Liquidity Ratio: This ratio indicates the number of months in which living expenses can be paid

off if an emergency arises.

Debt Payments Ratio: Indicates how much of a persons earnings go for debt payments.

Indicates how the persons earning goes for debt payments

Savings Ratio: This is how much per cent of your gross pay are you saving. This is an important

ratio as savings is one of the most important allocations of your total pay.

Debt to Assets Ratio: It is the percentage of the total assets of an individual that goes towards

payment of debt.

Debt to income Ratio: It is the percentage of the total income of an individual that goes towards

payment of debt.

Debt Ratio 2.699286

Current Ratio 0.628454

Liquidity Ratio 8.771

Debt Payments

Ratio 25.92593Savings Ratio 22.40161

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