Asset Management Site : Liabilities Assets Ratio Determines Financial Status

Both individuals and companies function better when they know exactly where they stand, with regard to their financial situation. Having accounting reports, such as financial statements, is a good way to get a snapshot of financial health. One of the indicators of a person's or a company's financial status is the liabilities assets ratio, which is determined by first making a complete and detailed list of all of the assets and the liabilities they have.

In addition to financial statements, a balance sheet is also a very valuable financial report, which can provide a very quick, bottom-line snap-shot of the financial stability of a company, individual or family. A balance sheet typically will include everything that is considered to be property, or current assets, which contribute to wealth building. These types of total assets include such things as stocks and bonds, equity in real estate holdings, cash on hand and other liquid assets, reliable cash flows, tools and equipment, and also intellectual property.

When creating the balance sheet, the liabilities that need to be listed are anything that the person or company currently owes to another party. This can be in the form of money and other liquid capital, property and services. In order to have a proper calculation of the liabilities assets ratio, many experts will also include some common liabilities that are often overlooked, such as tax obligations, fees and licenses, and other obligations which will result in a movement of any kind of net assets to a different entity or party.

A simple example of formulating the ratio between liabilities and assets can be seen in looking at an individual's particular situation. For someone who owns their own home, the picture of their current assets would include the fair market value of their home, deposits in all checking and savings accounts, the portfolio of all shares, stocks and bonds, investments in gold, silver, other coins, stamps, artwork, fine jewelry, and similar items of value that typically appreciate over time. In addition, total assets could also include retirement funds and expected pension rights, and any type of promissory note from which they are receiving regular payments.

For individuals, other types of personal property can also be included in the listing of total assets. Some of these other assets would be things such as vehicles, boats, recreational vehicles, equipment and implements, household furnishings, and even clothing. However, these are the type of things which depreciate in value over time, and as a result, some accounting professionals will exclude such items from a balance sheet in order to provide a more accurate view of true household wealth.

When creating the balance sheet, the liabilities that need to be listed are anything that the person or company currently owes to another party. This can be in the form of money and other liquid capital, property and services. In order to have a proper calculation of the liabilities assets ratio, many experts will also include some common liabilities that are often overlooked, such as tax obligations, fees and licenses, and other obligations which will result in a movement of any kind of net assets to a different entity or party.

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