Credit Control Gearing Ratio

littleangelww
littleangelww New MemberRegistered Posts: 6
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.

Comments

  • angi13
    angi13 Settling In Nicely Registered Posts: 24
    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
    Jules18 Settling In Nicely Registered, Tutor Posts: 102
    Remember the gearing ratio in both Cash Management and Credit Control is not the same as the one you use in Financial Statements.
  • Clintm15
    Clintm15 Well-Known FarehamRegistered Posts: 247
    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.
    AAT
    Level 2 - 2011
    Level 3 - 2012
    Level 4 - 2013

    ACCA
    F4 - Corporate Law - Dec 2015 (passed)
    F5 - Performance Management - Dec 2014 (passed)
    F6 - Taxation - Dec 2013 (passed)
    F7 - Financial Reporting - Jun 2014 (passed)
    F8 - Audit & Assurance - Dec 2015 (passed)
    F9 - Financial Management - Jun 2015 (passed)
  • Jules18
    Jules18 Settling In Nicely Registered, Tutor Posts: 102
    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
    CeeJaySix Well-Known Registered Posts: 645
    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
    Clintm15 Well-Known FarehamRegistered Posts: 247
    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?
    AAT
    Level 2 - 2011
    Level 3 - 2012
    Level 4 - 2013

    ACCA
    F4 - Corporate Law - Dec 2015 (passed)
    F5 - Performance Management - Dec 2014 (passed)
    F6 - Taxation - Dec 2013 (passed)
    F7 - Financial Reporting - Jun 2014 (passed)
    F8 - Audit & Assurance - Dec 2015 (passed)
    F9 - Financial Management - Jun 2015 (passed)
  • CeeJaySix
    CeeJaySix Well-Known Registered Posts: 645
    Based on what's above, it's the same by the looks of things. Yes I only remember the one being used in AAT.
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