PEV gearing ratio

lucy1988

HI,

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

Thanks

jay cutler

Gearing = Long term Loan/(Long term loan + Net Assets)

Khurram Taj

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

lucy1988

Thank you for your help

Lucy

Karen L

Brilliant ! You've just helped me as well ... :001_smile: