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

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