Client Data Gathering, Goal Setting, and Financial Statement Analysis
Domain overview
Client data gathering, goal setting, and financial statement analysis tests your ability to collect complete facts, convert client wishes into measurable goals, and read a personal balance sheet and cash flow statement. Questions often ask which item is quantitative versus qualitative or which ratio reveals a problem.
Data and goals
Quantitative data includes income, expenses, assets, liabilities, insurance policies, tax returns, and employee benefits. Qualitative data includes risk tolerance, time horizon, liquidity needs, health, family obligations, and values. Goals should be specific, measurable, prioritized, and time-bound. Separate essential goals from aspirational ones.
Statements and ratios
Net worth = total assets − total liabilities. Cash flow surplus = income − expenses. Useful ratios include savings rate (savings ÷ gross income), debt-to-asset ratio (total debt ÷ total assets), housing ratio (housing cost ÷ gross income), and emergency fund months (liquid assets ÷ monthly essential expenses). Use consistent income definitions; mixing gross and net income distorts every ratio.
Worked example
A household has assets of $300,000, liabilities of $120,000, gross income of $90,000, expenses of $75,000, and liquid savings of $10,000. Net worth = $300,000 − $120,000 = $180,000. Cash flow surplus = $90,000 − $75,000 = $15,000. Savings rate = $15,000 ÷ $90,000 = 16.7%. If essential monthly expenses are $6,250, a three-month emergency fund target is $18,750, so the client is $8,750 short. The reasoning links the statement to an actionable gap.
Traps that cost marks
- Double-counting an asset and the income it produces.
- Treating a car or home at purchase price when a current value is required.
- Using gross income for a budget based on take-home pay.
- Setting goals with no date or no priority.