# Gearing Ratio

columbia
Experienced MentorRegistered Posts:

**580**
Hi Guys

Hope you are all well on this lovely snowy day!

I have a skills test this evening, and try as I might I can never remember the correct formula for working out gearing ratios. :confused1:

I have a couple of formulas written down, can someone simplify it for me please so I can cram it into my addled brain over the next few hours!!

Thanks

Trace

Hope you are all well on this lovely snowy day!

I have a skills test this evening, and try as I might I can never remember the correct formula for working out gearing ratios. :confused1:

I have a couple of formulas written down, can someone simplify it for me please so I can cram it into my addled brain over the next few hours!!

Thanks

Trace

## Comments

20This may or may not help! But I will give it a go.

Gearing ratios assess the amount of long term capital in the company as this can be an element of risk.

Loan capital/capital employed x 100

Loan capital could be debenture stock.

I was studying ratios on Friday last week and gave myself a big headache.

Good luck for tonight!

2,034The one of the most common is the one Trace wrote My advice, irrespective of the formula you use, spell out exactly what you have done

i.e. Ratio name....formula in words....working/calculation.....the ratio itself.....your interpretation

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www.sandyhood.com

580Thanks a lot for the advice

Not sure why this particular formula gets me in a tizzy!

I will take all of your valued points on board, and hopefully if it comes up in tonights skills test I will be able to work it out correctly now!

Thanks again

Trace

1,800thanks everyone

Tracy

111Could anyone explain me a term "capital Employed"? I am so confused

ROCE = profit before taxation and interest / Capital Employed

Borrowing ratio = Loan capital / Total Capital Employed

What is the different between Capital Employed and Total capital Employed?

I thought that the capital Employed = Fixed assets +current assets -current liabilities - long term liabilities ( the same as a the amount in section "financed by" in BS...

So confused... and the exams are so close.....

715715121CAPITAL EMPLOYED = CAPITAL AMOUNT(THAT IS SHAREHOLDERS FUNDS, RESERVES ETCT ETC) + LONG TERM LIABILITIES

keep in mind capital is different frm capital employed

ps:hanapospis Fixed assets +current assets -current liabilities - long term liabilities IS CAPITAL NOT CAPITAL EMPLOYED

2,034Some examiner questions don't help (but I'd say I'm happy with the AAT examiners on this topic)

NB for MAC and PEVI Do not expect to see ROCE questions on either paper.

The examiner prefers to use RONA, and net assets are

[email protected]

www.sandyhood.com

1,800that would have stumped me in the PEV exam for sure.

Thanks Sandy, as ever you are brill.

Tracy

1,800i have just bought unit 11 (ever hopeful i will pass 8&9) so i will dig it out and fax what i have again if that is ok?

Tracy

29Gearing ratio is an excellent tool for professional analysts . It is simply a comparison of the company's debt and its equity, to determine who's really finacing the company's operations- the shareholders or the bank.

The standard formula is :

Gearing = Loans/loans+equity capitalif the gearing figure is more than 60%, it is generally reported high; 100% is very high.

Less than 20% could be taken as low. but in all cases it depends upon the prevailing circumstances at the time and what point of comparison is.

715Was thinking of swapping Providers but posted a thread asking what would happen about assessing my portfolio if I changed and no-one has answered so no idea what to do.