# PEV gearing ratio

Registered Posts: 74 💫 🐯 💫
HI,

Does anyone know how you get the gearing ratio for the June 2007 exam task 2.1 a.

Thanks

## Comments

• Registered Posts: 57 💫 🐯 💫
Gearing = Long term Loan/(Long term loan + Net Assets)
• Registered Posts: 29 💫 🐯 💫
Gearing

Hello
In the answer booklet, there are two answers for gearing ratio, Therefore, I am going to workout both answers for you so that you can understand clearly:-

First of all you beer in your mind the standard formula Gearing:

Gearing = Loans/loans + equity capital

754/754+971= 43.71%
1042/1042+683=60.40%

Second answer work out like:-

Which is working out: - Long term borrowing/net assets
754/971= 77.65 0r 0.78
1042/683=152.56 or 1.53:1

IMPORTANT
If the gearing figure is more than 60%, it is generally reported high; 100% is very high.

Less than 20% could be taken as low. but in all cases it depends upon the prevailing circumstances at the time and what point of comparison is.

Best regards

Khurram Taj
• Registered Posts: 74 💫 🐯 💫
Thank you for your help

Lucy
• Registered Posts: 70 💫 🐯 💫
Brilliant ! You've just helped me as well ... :001_smile:
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