More on balance sheets (2): Collateral and revaluation - Fine Homebuilding

previous
  • 7 Small Bathroom Layouts
    7 Small Bathroom Layouts
  • Basement Remodeling Tips
    Basement Remodeling Tips
  • 7 Trim Carpentry Secrets
    7 Trim Carpentry Secrets
  • Remodeling Articles
    Remodeling Articles
  • Magazine Departments
    Magazine Departments
  • Video Series: Tile a Bathroom
    Video Series: Tile a Bathroom
  • Master Carpenter Videos
    Master Carpenter Videos
  • Video: Install a Fence
    Video: Install a Fence
  • Pro Tool Rental. Learn More.
    Pro Tool Rental. Learn More.
  • Custom Flooring Inspiration
    Custom Flooring Inspiration
  • Energy-Smart Details
    Energy-Smart Details
  • All about Roofing
    All about Roofing
  • Hot Water Now
    Hot Water Now
  • Clever daily tip in your inbox
    Clever daily tip in your inbox
  • Read FHB on Your iPad
    Read FHB on Your iPad
  • Design Inspiration
    Design Inspiration
  • 9 Concrete Countertops Ideas
    9 Concrete Countertops Ideas
  • 7 Smart Kitchen Solutions
    7 Smart Kitchen Solutions
  • Classic Cabinets
    Classic Cabinets
  • Tips & Techniques for Painting
    Tips & Techniques for Painting
next

Building Business

Building Business


More on balance sheets (2): Collateral and revaluation

comments (0) November 3rd, 2011 in Blogs

More on balance sheets from Sal Khan.

Here, Sal expands on the balance sheet from the previous episode where he bought a $1 million house with $250k cash and a $750k loan from a bank.



Assets = Liabilities + Equity

$1M = $750k + $250k

 

He expands a bit on the balance sheet with a quick overview of how loans work, introducing the terms 'collateral,' 'revaluation,' and 'marking to market' into the conversation.

Collateral is what we tell the bank they can keep if we do not pay our debt to them.

Revaluation, or marking to market, is assigning a new value to an asset  (marking) if the real world (the market) dictates it.

Every so often, in order to be honest with ourselves, we need to revalue our assets, and rebalance our balance sheet.

  • If the value goes down, then equity must go down because liabilities must stay the same.
  • If the value goes up, then equity goes up because the liabilities must stay the same.

Liabilities have nothing to do with market value except in securing the loan and convincing the bank that the house is sufficient collateral.

 

More DIY MBA articles

 


This video comes from www.khanacademy.org


 

 



posted in: Blogs, business, diy mba

Comments (0)

Log in or create a free account to post a comment.