Current Ratio and Primary Residence

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

Student Question:

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

Instructor Response:

    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.