# Pev june 2008

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Registered Posts: 20 New contributor 🐸
Section 2.1 gearing ratio

can someone please explain gearing ratio i worked the question by using long term loan /net assets i got 1.43 but they seems to get 58 percentage need explaination thanks for you help

• Registered Posts: 585 Epic contributor 🐘
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nosaj wrote: »
Section 2.1 gearing ratio

can someone please explain gearing ratio i worked the question by using long term loan /net assets i got 1.43 but they seems to get 58 percentage need explaination thanks for you help

gearing ratio = Long term liability(LTL) divide by (net assets plus LTL)

therefore gearing = 12000 /(8400+12000) x100 = 58.82%
• Registered Posts: 32 Regular contributor ⭐
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Hi,

I think the equation is long term loan/net assets+long term loan

12000/20400 = 0.588 multiply by 100 = 58.8%
• Registered Posts: 20 New contributor 🐸
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Thanks much i was not adding back the long term loan
• Registered Posts: 122 Dedicated contributor 🦉
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we've been taught debt over debt plus equity or:

Long term liabilities / net assets plus long term liabilities.

I'm just doing that paper now. Had completely forgotten about interest cover and oncorrectly took net profit (after interest) instead of operating profit (PBIT).

Finding the comments of the Financial position question bit tough.
• Registered Posts: 122 Dedicated contributor 🦉
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So stuck on 2.2.c. Can anyone help?

I said do contract put because the Romanian cost per turbine for 10,000 units would be £650 plus £105 unavoidable fixed production costs, as opposed to £800 for Voltair. Answer doesn't factor in these FPC to contract out. Why?

I said don't contract out for 14000 units as economies of scale allow prod cost of £714.29 per turbine as opposed to £650 plus £75 contracted out.

HELP???
• Registered Posts: 122 Dedicated contributor 🦉
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DOH!
Just scrolled down the answer page!
Time for a break I think.