PEV gearing ratio
lucy1988
Registered Posts: 74 Regular contributor ⭐
HI,
Does anyone know how you get the gearing ratio for the June 2007 exam task 2.1 a.
Thanks
Does anyone know how you get the gearing ratio for the June 2007 exam task 2.1 a.
Thanks
0
Comments
-
Gearing = Long term Loan/(Long term loan + Net Assets)0
-
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 Taj0 -
Thank you for your help
Lucy0 -
Brilliant ! You've just helped me as well ... :001_smile:0
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