Credit Control Gearing Ratio

littleangelww

Im trying to work out how my AAT book got their answer for the gearing ratio. Can anyone help please?!?!?!

The figures I have are:
sales revenue £1000
Cost of sales £600
Current assets £440
Current liabilities £310 -- current liabilities includes short term debt and trade payables only
Inventory £200
Trade recievebales £204
Trade payables £150
Profit from operations £80
Interest Paid £20
Net profit £ 60
Long term debt £200
Equity £400

The answer that they get is 47.37%

Any help will be appreciated.

angi13

Hi,
Gearing Ratio= Loans + Preference Share Capital / Loans + Preference Share Capital + Equity x100 or you can use the following formula Total Debt/Total Debt+Equityx100

Total Debt £360
Equity £400
£360/£360+£400x100=47.37%

Jules18

Remember the gearing ratio in both Cash Management and Credit Control is not the same as the one you use in Financial Statements.

Clintm15

Jules18 wrote: »

Remember the gearing ratio in both Cash Management and Credit Control is not the same as the one you use in Financial Statements.

Really? That has thrown me as I only know of one gearing ratio.

Jules18

You can get prior charge capital / equity * 100. Prior charge capital includes Pref shares, bonds, long-term bank loans, short-term loans and overdrafts
,

CeeJaySix

Gearing ratios can be used to show a relationship between any number of things...what you learn as 'THE' gearing ratio is in fact just 'A' gearing ratio - just happens to be the one you need for that particular topic. There's some more financial ones here: http://www.investopedia.com/terms/g/gearingratio.asp

Clintm15

I should have been more clear. I only remember one gearing ratio within the context of AAT. I used one gearing ratio and it's the same one I use in ACCA. Essentially it is still debt/capital employed with minor variations on the components.

So what is the difference between the Financial Statements ratio and the one used in Cash Management?

CeeJaySix

Based on what's above, it's the same by the looks of things. Yes I only remember the one being used in AAT.