PEV gearing ratio

lucy1988 Registered Posts: 74 💫 🐯 💫

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



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

    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%

    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

    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
  • lucy1988
    lucy1988 Registered Posts: 74 💫 🐯 💫
    Thank you for your help

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