FPQP FPQP Financial Statement Analysis 1

Question 1

Which personal financial statement shows a client's assets, liabilities, and net worth at a specific point in time?

Accepted Answer

Balance sheet (net worth statement)

Answer

A personal balance sheet, or net worth statement, is a snapshot showing total assets minus total liabilities equaling net worth on a given date.

Question 2

A client's net worth is calculated as:

Accepted Answer

Total assets minus total liabilities

Answer

Net worth equals total assets (what a client owns) minus total liabilities (what a client owes).

Question 3

Which ratio measures how well a client can cover short-term obligations with liquid assets?

Accepted Answer

Liquidity ratio

Answer

The liquidity ratio divides liquid assets by monthly living expenses, showing how many months a client can sustain spending without income.

Question 4

On a personal balance sheet, a client's home mortgage would be classified as:

Accepted Answer

A long-term liability

Answer

A mortgage is a long-term liability because repayment extends beyond one year, distinguishing it from short-term obligations.

Question 5

A client has $80,000 in liquid assets and monthly living expenses of $4,000. What is their liquidity ratio?

Accepted Answer

20 months

Answer

$80,000 ÷ $4,000 = 20 months, meaning the client can cover 20 months of expenses with liquid assets alone.

FPQP - Financial Paraplanner Qualified Professional Practice Test