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Introduction
Liquidity ratio is the measure of the ability of the company to discharge its short-term liabilities. It can be calculated by dividing the amount of cash with short-term liabilities.
Quick ratio, Current ratio, and operating cash flow ratio are the various examples of liquidity ratio. (Investopedia, 2009).
Debt service to income ratio
A debt service to income ratio is the comparison of the debt payments is an individual to the income generated by him. If the ratio is high, then the individual is having burden of making payments to his debts. (Investopedia, 2009).
Example
If the debt of an individual is $20,000 and income is $45,000, then the debt to income ratio will be 44.44%
Asset to Debt Ratio
It is the indication of the amount of the assets of the company which debts are generated through debt financing. A ratio above 1 indicates the majority of assets being financed through debts and vice versa. (Investopedia, 2009)
Example
If the liabilities of a company are $ 25,000 and the assets are worth 60,000, then the ratio will be 0.4166.
Financial Values, Goals and Strategies
Financial Values
Financial values are the principles and commitments of an entity to do a certain kind of business.
Goals
Financial goals are the objectives which are to be achieved by the management of an entity. These are the targets to be achieved by the entity. They can be long term and short term.
Strategies
Strategy is the road map used by the management of an entity to ensure that the goals are achieved.
Relationship between financial values, goals and strategies
The financial values, goals and strategies are all interlinked with each other. All three must be in line to achieve the mission of the entity. An organization, when it comes into existence, it has a certain mission statement as to their financial aspects which they have to follow. This mission statement defines the values and policies on which the management has to do business and spend money. The management then sets goals to fulfill these values and policies; these can be long term and short term. Strategies are formulated as to the amount of money to be spent, way to arrange the liquidity, repayment and strategies related to credit and debt of the entity. These strategies are made, keeping the financial values and goals in mind.
Strategies to reduce income tax liability
Listed below are some of the ways of reducing the income tax liability of an entity.
Reduction in income
One way to minimize the income tax liability is to reduce the income itself, this can be done by reducing the adjusted gross income. It is the total of a person’s income as reduced by any deductions or adjustments. (Finweb, 2009)
Tax Credit
Income tax liability can also be reduced by fully utilizing a person’s tax credit. Tax credits are awarded by the government for certain expenses, which are deducted from the tax liability. (Finweb, 2009)
Tax free schemes
Investing in schemes which are tax free in a particular area can be an effective means of reduction in an entity’s tax liability. For example, Agriculture is usually a tax free business in most of the countries so investing in agriculture can reduce the tax liability to a great extent.
Prepay Expenses
Prepay expenses also reduce your tax liability. If an entity pays up its interest on any investment loan by 12 months or so, the entity can claim a deduction against it. (Money Buddy, 2009)
Other measures
While operating a small business, tax liability can be reduced by purchasing extra office equipment, making repairs early, writing off inventory, using credit cards to pay off expenses and get them deducted out of this year’s total income.
Consumer Credit
Consumer credit is the provision of money, goods or services on credit, to an individual. Consumer credit includes installment loans, credit cards, mortgages, auto financing etc. (Wikipidia, 2009)
Installment loans
It is a kind of loan which can be repaid at a certain rate, in form of a number of scheduled payments to the lender over a certain period of time. (Wikipedia, 2009)
Credit card
A credit card is a small card issued to the customers by certain banks, which entitles the consumer to buy goods and services on it and to pay it later with a certain rate of interest.
Mortgage loan
A mortgage loan is a kind of loan which can be obtained by granting the documents of a real property to the lender, which secures the loan. It cab be repaid in certain installments at a certain rate. (Wikipedia, 2009)
Comparison
The differences between the three kinds of consumer credits are stated below.
Installment loans and mortgage loans are usually paid off in equal installments which can be monthly, quarterly, half yearly, yearly etc while credit card loan is not discharged in equal installments.
In Credit card, payments can be made at several intervals while in the latter; the loan is sanctioned as a whole.
In mortgage loan, unlike credit card and installment loans, some real property is mortgaged as a security for the repayment of the loan.
References
Web. (2009).
Web. (2009).
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