Current Ratio and Primary Residence

Course: Fundamentals of Financial Planning
Lesson 3: Personal Financial Statements

Student Question:

Hi

What role does the client’s primary residence play in the current ratio calculation? Is 
their outstanding mortgage loan amount considered a liability?

Thank you

Candace


Instructor Response:

Hi Candace,

That’s a great question. The residence is not considered a liquid asset and is excluded from “assets” for the current ratio. Only debt maturing within the next twelve months is considered a liability.

Onward and Upward,
Bruce