Gearing

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion
Hi

did anybody know that gearing was in the syllabus for PEV? i thought it was only included in DFS and didn't have a clue as to what it was!! Wonder if it is likely to come up in DFS as well and whether its something worth revising (or even learning at all in my case!)

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Gearing

    I couldn't find it in the Osbourne book for this unit last night!! I think I remembered it from DFS Dec
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Gearing

    Long-term borrowing as a % of the total Capital employed (Fixed Assets + Net current assets)


    Scenario 1
    ..... 754 .....
    1600 + 125
    =43.71%

    Scenario 2
    ..... 1,042 .....
    1600 + 125
    = 60.41%

    I'd not be surprised to see other contributors using a different formula, but I would expect the answer to be the same.

    sandy.hood@chichester.ac.uk
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Gearing

    Sandy, were you surprised to see it in the PEV paper?
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Gearing

    No surprise.

    Cliff Floyd had made several references to it.
    We even discussed the differences between gearing and debt/equity ratios at a Masterclass in the Autumn.

    I happen to think that management of performance should not be measured in terms of the capital structure of a business, but that doesn't really matter.
    He is entitled to have it in, and there was plenty of evidence to suggest he was going to put it there.

    sandy.hood@chichester.ac.uk
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Gearing

    We were taught long term debt plus preference shares over long term debt, preference shares and share capital. Cant remember my figures but used long term debt on top and added long term debt to share capital underneath as there was no preference shares in the question.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Gearing

    I was suprised to see it - I used the Osbourne books and don't remember seeing it in there.

    It's definitely covered in DFS.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Gearing

    I thought gearing to be
    (longterm debt)/(longterm debt + equity) or is this what is meant by the debt/equity ratio. If it is I've got the gearing question wrong. :? Longterm debt I understood to included preference shares and longterm loans.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Gearing

    I think there are a few ways of calculating gearing. As long as you're consistent with the method and interpretation it doesn't matter too much which one you use.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Gearing

    i use the same formula i.e. long term debt over capital plus long term debt. shows how much perentage is external borrowings out of toal funds (external and internal).
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Gearing

    Hi All,
    I am doing my Technician over a two years and will be doing DFS next sept. Gearing is NOT in the book and unfortunatley, not in my notes. I had heard of gearing when studying personal Tax last year, but that was only the definition, not how to calculate it. On the whole i thought the paper was a good one, but unfortunately ... i will be doing re-sit in December as i think i messed up on section1/part 2. Do we have answers for the PEV june exam yet? I am very new to accessing the student forum/AAT website. Good luck to all of you out there. It is not easy to work and study. crees31

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