Gearing Ratio

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sexyback
sexyback Registered Posts: 13 New contributor 🐸
Please help

Can anyone explain Gearing Ratio

Thanks
S

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  • gingervicki
    gingervicki Registered Posts: 87 Regular contributor ⭐
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    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
    Hayman Registered Posts: 36 Regular contributor ⭐
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    gearing = loan/loan + equity X100

    If over 50 high geared
    If lower than 50 low geared
  • SugarPuff
    SugarPuff Registered Posts: 12 New contributor 🐸
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    Thanks this really helped me in PEV June 2008 :001_smile:
  • Londina
    Londina Registered Posts: 814 Epic contributor 🐘
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    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
    AdamR Registered Posts: 668 Epic contributor 🐘
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    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
    wolfe Registered Posts: 121 Dedicated contributor 🦉
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    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
    wolfe Registered Posts: 121 Dedicated contributor 🦉
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    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 .
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