Help with the practice Assesment 2 for gearing ratio

Paulasw1

hi, Can anyone help me with the task 4 from the Assessment 2 how to figure out the % of Gearing ratio. The answer is 233.80% in 20X5.

Rusty1985

Hi Paula,

Can you type the question and then we can have a look, or advise on the figures you used? Initially did you ensure you added the Non-Current Liabilities back in the formula? Depending on the scenario, some current liabilities are used in gearing formula (but it should say in the question if thats the case), also I would revisit the equity, you may have missed a figure which is why the gearing % is so high.

Non current liabilities
---------------------------- X 100
Non current liabilities + Total Equity

Paulasw1

Hi its a written question...
Both long term and short term borrowing have increased. The gearing ratio has increased to (233.80 %) in 20x5
where : short borrowing is 2750 in 20x5 and 2590 in 20x4, long borrowing 21500 in 20x5 and 19800 in 20x4, total equity 10372 in 20x5 and 10965 in 20x4.
really i dont know why is 233.80%

Clintm15

A gearing ratio just compares debt to equity by applying the ratio debt/equity.

So in this case:

(short borrowing is 2750 + long borrowing 21500) / total equity 10372 = 233.8%