# Gearing Ratio!

Registered Posts: 72 ? ? ?
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:

• Registered Posts: 158 ? ? ?
Gearing Ratio

Long term debt / capital employed x 100

Where

long term debt = interest bearing capital + long-term loans

and

capital employed = ordinary share capital + reserves + interest bearing capital + long term loans

The gearing ratio shows the proportion of long-term 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 helps
• Registered Posts: 72 ? ? ?
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.

Jackie
• Registered Posts: 72 ? ? ?
sorry June 2008 im doing
• Registered Posts: 158 ? ? ?
Whats the name of the company on the exam?
• Registered Posts: 72 ? ? ?
Grippit Ltd
• Registered Posts: 158 ? ? ?
Give me two seconds and I'll work out the answer for you.
• Registered Posts: 158 ? ? ?
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!
• Registered Posts: 72 ? ? ?
you star thank you so much!!!

Stuck on the next one now!! lol :001_unsure:
• Registered Posts: 158 ? ? ?
Interest Cover is worked out as follows:

Operating profit / interest

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:
• Registered Posts: 72 ? ? ?
WOW! thanks

How have you learnt all this? My head is fried!!!

Thank you so much!!! :thumbup:
• Registered Posts: 158 ? ? ?
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?
• Registered Posts: 72 ? ? ?
I am doing PEV along with re-sit FRA!

Need to re-sit 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?
• Registered Posts: 158 ? ? ?
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 [email protected].
• Registered Posts: 72 ? ? ?
right o ta muchly!

I have emailed youx
• Registered Posts: 721 ? ? ?
Can anyone explain why thee are two entirely different ways of working out gearing ratios which end up with 2 totally different answers?