Gearing Ratio!

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:

Comments

  • 111beckstar111
    111beckstar111 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
  • jackiepowell
    jackiepowell 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
  • jackiepowell
    jackiepowell Registered Posts: 72 ? ? ?
    sorry June 2008 im doing
  • 111beckstar111
    111beckstar111 Registered Posts: 158 ? ? ?
    Whats the name of the company on the exam?
  • jackiepowell
    jackiepowell Registered Posts: 72 ? ? ?
    Grippit Ltd
  • 111beckstar111
    111beckstar111 Registered Posts: 158 ? ? ?
    Give me two seconds and I'll work out the answer for you.
  • 111beckstar111
    111beckstar111 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!
  • jackiepowell
    jackiepowell Registered Posts: 72 ? ? ?
    you star thank you so much!!!

    Stuck on the next one now!! lol :001_unsure:
  • 111beckstar111
    111beckstar111 Registered Posts: 158 ? ? ?
    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:
  • jackiepowell
    jackiepowell Registered Posts: 72 ? ? ?
    WOW! thanks

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

    Thank you so much!!! :thumbup:
  • 111beckstar111
    111beckstar111 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?
  • jackiepowell
    jackiepowell 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?
  • 111beckstar111
    111beckstar111 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].
  • jackiepowell
    jackiepowell Registered Posts: 72 ? ? ?
    right o ta muchly!

    I have emailed youx
  • PAMDILL
    PAMDILL 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?
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