1. By analyzing financial statements (either using horizontal or vertical analysis), a person can assess his or her financial condition and progress. The two most important financials statements are federal tax returns; income and expense statements.
Why do think these are the two most important statements,
2. A balance sheet reflects one’s net worth.
Net Worth is essential to show the current financial status of an individual’s or a business’s surplus or deficit.
Assets (net worth statement) – Liabilities (net worth statement) = Net Worth
Recommendation: Should increase with age until retirement
Example: $67, 502 (assets) – $43,459 (liabilities) = $24,043 Net Worth (surplus)
Example: $245,050 (assets) – $306,432 (liabilities) = (-$61,382) Net Worth (deficit)
Thoughts? Do you agree this is essential? Please explain.
