NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Evaluating the Financial Position of Clients
In personal financial statement analysis, the ratio of liquid assets to monthly non-discretionary cash expenses is used to assess which aspect of a client's position?
The ratio of liquid assets to monthly non-discretionary expenses measures emergency fund adequacy. It shows for how many months the client can meet essential outgoings without income, which is the liquidity test in a personal financial analysis.
- AEmergency fund adequacyCorrect
- BDebt servicing capacity
- CInvestment asset allocation
- DNet worth growth rate
Explanation
Liquid assets divided by monthly essential expenses gives the number of months the client can sustain expenses without income. This is the emergency fund (liquidity) ratio. Debt servicing uses EMIs against income, not liquid assets against expenses.
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