Gearing Ratio!
jackiepowell
Registered Posts: 72 Regular contributor ⭐
Hi Guys
Anyone know what the gearing ratio is? Doing June 2008 paper section 2!
Gone through books and cant find it.
Thanks
Jackie :001_unsure:
Anyone know what the gearing ratio is? Doing June 2008 paper section 2!
Gone through books and cant find it.
Thanks
Jackie :001_unsure:
0
Comments

Gearing Ratio
Long term debt / capital employed x 100
Where
long term debt = interest bearing capital + longterm loans
and
capital employed = ordinary share capital + reserves + interest bearing capital + long term loans
The gearing ratio shows the proportion of longterm debt to capital. I shows the extent to which the company is financed by debt. Gearing can be calculated in a number of ways although this formula is commonly used.
The rato should ideally be less than 50%, the higher the figure the less secure the company is!!!!
Hope this helps0 
thanks for that! But im still rather confused!
Im doing June 2007 Task 2.1a Where does your capital employed figure come from?
Ive just divided the long term borrowing by net assets.
Jackie0 
sorry June 2008 im doing0

Whats the name of the company on the exam?0

Grippit Ltd0

Give me two seconds and I'll work out the answer for you.0

Got it!
As you can see there are two answers for this question
the first are 58.82% and 57.36%
This is worked out as follows:
Long term borrowing/Long term borrowing + net assets
The second answer are also correct  1.43 or 143% and 1.35 or 135%
This is worked out as follows:
Long term borrowing/ net assets
and
Long term borrowing/ net assets x 100
Hope this helps!0 
you star thank you so much!!!
Stuck on the next one now!! lol :001_unsure:0 
Interest Cover is worked out as follows:
Operating profit / interest
so the answer would be:
for scenario 1  2,750 / 600
and for scenario 2  2250/600
Interest cover measures the ability of a business to pay inerest on borrowing from is profits
The higher the figure the better!!
Hope this helps:thumbup:0 
WOW! thanks
How have you learnt all this? My head is fried!!!
Thank you so much!!! :thumbup:0 
I recently had to learn it for unit 15 simulation you see.
If I could be of any more help i'll try my best! :001_smile:
Are you just studying for PEV?0 
I am doing PEV along with resit FRA!
Need to resit PCR in Dec. Got Bus Tax to do along with DFS i think aswell!
Im so mithered.!
Been a great help thankyou.
Is it easier to speak on email for you?0 
Bloodihell a lot on then.
Im doing PEV, PTC and BTC this June.
Yeah if you need any help like I said I'll try my best, you can email me beckishaw1@msn.com.0 
right o ta muchly!
I have emailed youx0 
Can anyone explain why thee are two entirely different ways of working out gearing ratios which end up with 2 totally different answers?0
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