PEV June 2008 - Task 2.1

Theresa M

Can anybody tell me what a gearing ration is:confused1:
I am doing homestudy with BPP and there is no mention of a gearing ratio in any of their books. Any info on what this ratio is and how to calculate it would be much appreciated. I am going mad trying to work it out.:mad2:

Marg22

Yes, you are perfectly right it is not in any of the Unit 8 books, which is rather naughty.

I came across it while studying DFS

Gearing is all about finding out how much debt the company has in relation to capital employed and you show it as a percentage.

Debt is defined as : Debentures/long-term loans, including preference shares

Capital employed : ordinary share capital + reserves + preference share capital + debentures/long-term non-current) loans

Debt / capital employed X 100 = percentage

There is another version but I have been told not to use it by my tutor.

Debt/equity X100

Hope this help

Kind regards

Marg

SandyHood

There are two, but I recommend that you stick to the first one. Your examiner will use that.

Theresa M

Thanks for your help - I will give it a go and see if I can get my head round it. I feel sorry for anyone who sat the June exam if they never heard about gearing ratios...............

SandyHood

The standards say:

8.2 Monitor performance and make recommendations to enhance value

B Prepare and monitor relevant performance indicators,…

The range statement says:
performance indicators to measure:
• Financial,…

So irrespective of the content of the unit 8 books it could be in the exam, on the basis of the standards.

At this stage, I could argue that it might not be examined as gearing is not mentioned by name, but then ..........

If you look at the subject guidance booklet on page 16, there are no doubts at all:-

The following is a list of the type of performance indicators candidates might be asked to calculate.
1. Financial (profitability, liquidity, efficiency and gearing)
(a) Gross profit margin, operating profit margin, administration costs as a percentage of
turnover, any cost as a percentage of turnover
(b) Current ratio, quick ratio
(c) Trade cycles (debtor days, stock days, creditor days)
(d) Gearing ratio, debt to equity ratio
(e) Value added (turnover less the cost of materials used and bought in services


Examiner's comments:

June 2008
Future exams may require candidates to calculate a range of indicators including those not assessed in recent exams. Examples include the labour efficiency and capacity ratios, asset turnover, stock turnover, debtors’ payment period, creditors payment period, current ratio, acid test, interest cover and gearing. Candidates need to be able to calculate the ratios and also explain what they mean or why they may have changed.

Dec 2007
Future exams may require candidates to calculate a range of indicators including those not assessed in recent exams. Examples include the labour efficiency and capacity ratios, asset turnover, stock turnover, debtors’ payment period, creditors payment period, current ratio, acid test, interest cover and gearing. Candidates need to be able to calculate the ratios and also explain what they mean or why they may have changed.
rather familiar !!

June 2007
Future exams may require candidates to calculate a range of indicators including those not assessed in recent exams. Examples include the labour efficiency and capacity ratios, asset turnover, stock turnover, debtors’ payment period, creditors payment period, current ratio, acid test, interest cover and gearing. Candidates need to be able to calculate the ratios and also explain what they mean or why they may have changed.
are you getting a picture yet??

Dec 2006
Future exams may require candidates to calculate a range of indicators including those not recently assessed. Examples include the labour efficiency and capacity ratios, asset turnover, stock turnover, debtors’ payment period, creditors payment period, current ratio, acid test, interest cover and gearing.
well that's a thought!!

June 2006
no mention

Dec 2005
written by his predecessor (so not applicable)

I feel sorry for anyone who sat the June exam if they never heard about gearing ratios...............

But only because they had not been prepared for the exam thoroughly.

If you are a home study student, go to the

1. Standards and read what they say - this is the unit syllabus
2. guidance booklet, this shows how the examiner has interpreted the standards. I felt that gearing was unlikely to be examined until I saw his views
3. examiner's comments for all his past papers

If you want my help at a PEV/(MAC) revision day I am looking at the following dates and locations
Sun 2nd Nov Leeds
Sun 9th Nov Birmingham
Sat 15th Nov London