20 June 2011

Why Managing Cash Flow is So Important to Your Investment Process? - Part 2

If you haven't read part 1, you can go from the link here.

As cash flow is very important, I have done a spreadsheet, clearly state out my balance sheets item, including Long Term Asset, Long Term Liabilities, Current Assets, Current Liabilities etc. Let me illustrate it to you as below:
Long Term Assets:
- Property Market Value (I didn't use the book value as I hope that it can be sold out at market value)
- Car Market Value (I didn't use the book value as car normally can only be sold below book value)
- EPF / CPF (This amount can only be used after age of 55. However Account 2 of EPF can be used for investment while OA & SA after the threshold amount can be used for investment too).

Current Assets:
- Marketable securities (I would categorize shares and unit trusts as this category )
- Cash & Equivalents (Including RM, SGD, AUD)
- Mortgage Loan Advance Payment (The higher BLR rate, the more interest I can save)
- Possible Rental Income (Within next 12 months)
- Possible Blog Income (Within next 12 months)
- Possible Dividend Income (Within next 12 months)

Long Term Liabilities:
- Mortgage Loan - Principal Balance (In Principal Amount, as I put the interest payment in current liabilities)
- Car Lon Balance

Current Liabilities (Expense to be incurred within 12 months):
- Living Expenses (monthly expense * 12 + annual expense)
- Mortgage Loan to be paid within 12 months
- Car Loan to be paid within 12 months
- House Renovation Expense (to be incurred next Year)

Equity = Asset - Liabilities

As you can see, I didn't include possible 12 month salary income in Current Asset, that is because I do not want to confuse myself that I can easily use that money in future. And I am going to be a self-employed person, hence I cannot calculate the salary income anymore.

I have set the finance ratio as below:

Current Ratio = Current Asset / Current Liabilities
Liquidity Ratio = Cash & Equivalent / Current Liabilities
Total Debt to Equity Ratio = Total Liabilities /Equity
Long Term Debt To Asset Ratio = Long Term Debt / Asset
Investment to Current Asset Ratio = Marketable Securities / Current Asset
Cash To Total Asset Ratio = Cash & Equivalent / Total Asset
Property to Total Asset Ratio = Property / Total Asset

You are welcome to my post - My Portfolio Ratio Analysis to read about my explanation and strategy for the above finance ratio analysis which suits to my portfolio. 

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