DFS Help - Gearing Ratio - I'm confused

Laura88

I'm doing a DFS paper at the moment in preparation for tomorrow (booooo!!!)

It has asked for the gearing ratio which I have understood it to be Debt divided by Equity (at least that is what I used on PEV yesterday!)

But in the answer booklet it says Gearing Ratio = Debt divided by (Debt + Equity)

My ratio (debt/equity) is in there as an an alternative ratio but how can this be as they give different answers?

x

Bex

Hi Laura,

When I did DFS in Dec we got taught that either calculation is correct.

In a DFS past paper, is there any which ask for gearing? If so, check the answers and see if the AAT will mark either right depending on which formulae you use.

xx

Laura88

Hi Bex,

Thank you.

Yeah I am doing DFS June 07 at the moment and they have put both answers down as being correct. (My way is the alternative way according to the answer book) but I just wondered how they can both be correct thats all!?

How was December's DFS for you? I am absolutely dreading it. I honestly can say that I am most likely going to fail cuz I just don't understand it.

x

Bex

The main thing I would say is don't panic if nothing balances! A lot of my friends couldn't balance their cashflows / balance sheets etc etc and still passed because their workings were consistent and correct to an extent, so they did know what they were doing.

I enjoyed DFS but I prefer the financials to the management - hence my struggles with PEV and PCR - I HATE COSTING!!!! lol.

The good thing with DFS is, apart from the FRS' etc you know what you will get as the past papers are consistent. I find with PEV and PCR you could get a range of questions and so have to learn twice as much - that may just be me though.

xx

Laura88

Thanks for that info, it is good to know! I can never get anything to balance!

So you are the opposite to me then! I really like costing, I actually enjoyed PCR in December, it was a nice paper. PEV yesterday wasn't too bad apart from a very stupid task 2.2 (Didn't know what that was on about!) I've always like the costing/management accounts side but hate the financial! Perhaps because I work in management accounts...we don't deal with financial side. Most people in my class are like you though, they don't understand why I like PCR and PEV!

I was exactly the same last year at Level 3, I ws convinced that I failed the financial paper cuz I just messed it up...well I feel like I did anyway! But I actually passed...I couldn't believe it when I got the results, I don't know how it happend!

x

Bex

Yep, I am the total opposite as again, last year, I came out crying from the ECR paper, convinced my figures were wrong, even though my workings were correct! Luckily I passed though - I swear due to my workings etc and section 2 answers.

Most of my College friends hate the financials and are like you. I don't work in manufacturing you see, I have grown up with my AAT world and have worked with profit and loss' and balance sheets for the past 4-5 years, that's probably why I enjoy it! How sad are we though! lol.

Always show your workings in DFS, even if you think it's a petty calculation - it may save your bum when the examinor marks the papers xx

Laura88

Oh bless!! Yes I got home from Financial exam last year and cried lol! Thats what I will probably do tommorrow after DFS aswell! I wish the days could just skip to Thursday!!

Thanks for your 'tips' anyway and your info about your friends items not balancing. That has made me feel a bit better.

Good luck in your exams...PCR is Thursday for you I think isn't it?

I've got PTC on Friday.

x

jimbob

gearing ratio should be l/t debts/capital employed*
this should be share capital, share prem r/earnings and long term loans
i think

this tests the long term financial stability of a company and banks dont usually lend to companies with ratios higher than 50% so lower is better

Becks2214

Soce

Anyone have any tips on Statements of Changes in Equity?

mehmet

Either the debt/equity or debt/debt+equity ratios are permissible in the exam. However, occasionally the examiner will specify which of the two he wants you to use.

Becks2214 wrote: »

Anyone have any tips on Statements of Changes in Equity?

The statement of changes in equity shows the changes that have happened to the shareholders' equity in the company.

You will be provided with a proforma when asked to show it in the exam. Normally you will start with the reserves at the start of the year. You then add the profit for the year, then deduct any dividends paid to give you the balance of reserves at the end of the year.

Becks2214

Thanks Mehmet.

Bex

I messed up on that gearing I think as I took the short and long term debt and only the share capital, not the shares + retained profit etc. Woopsy - no-one else do what I did! lol

xx