Gearing Ratio

sexyback

Please help

Can anyone explain Gearing Ratio

Thanks
S

gingervicki

i remember it as D.E.A.D

Debt
equity and debt

i remember highly geared is a problem and you have more debt than money in the business.

i think:confused1:

Hayman

gearing = loan/loan + equity X100

If over 50 high geared
If lower than 50 low geared

SugarPuff

Thanks this really helped me in PEV June 2008 :001_smile:

Londina

Hayman wrote: »

gearing = loan/loan + equity X100

but sometimes is loan + preference share capital / equity + loan!!

why there are so many variation of this formula I have no idea:sneaky2:

AdamR

Don't - the one I had to learn for my exams last week was Net Debt/Equity - you had to adjust for cash at bank!:huh:

wolfe

hi sexyback
gearing formula is debt/debt +equity

it shows how much of the business is financed by debt . imagine a business being financed 100% by loans?!! lol. anyway usually a low gearing is better . but the acceptable differs from industry to industry . for eg 60% gearing may be way too much for a small store . but ok for a steel mill.

wolfe

i 4got one thing
another formula is debt/equity. either of the formaula may be used in the exam .just make sure you write the formula so the assessors can easily know which one u used .