gearing ratio formula

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MOHMEDSALIM PATEL
MOHMEDSALIM PATEL Registered Posts: 184 Dedicated contributor 🦉
in AAT Level 4 (Level 8 in Scotland)
will you please let me know how to work out gearing ratio.
i have lost my college hand out except gearing ratio i am fine.

i heard the formula for DFS and PEV is different is that true.

thank in advance

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  • lala2009
    lala2009 Registered Posts: 95 Regular contributor ⭐
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    long term liabilities/equity + long term liabilities :o)
  • CathG
    CathG Registered Posts: 145 Dedicated contributor 🦉
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    lala2009 wrote: »
    long term liabilities/equity + long term liabilities :o)

    or it could just be:

    long term liabilities/equity x 100

    I don't understand why either can be used, though as obviously they do have different results. :confused1:
  • lala2009
    lala2009 Registered Posts: 95 Regular contributor ⭐
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    Yeah it's confusing! I have been taught long term liabilities/equity x 100 is the debt/equity ratio? In the PEV answers they have several different approaches so I guess any of them would be acceptable :)
  • snooop
    snooop Registered Posts: 18 New contributor 🐸
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    I find this formula the most simple to understand

    long term loan/Fixed asset + Net Current Asset x 100


    (Net current asset is Current Asset - Current Liability)
  • tauq786x
    tauq786x Registered Posts: 35 Regular contributor ⭐
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    i dont think fixed assets come in to it :S

    i always thought it was..... longtermliability/(LTL+net assets) X 100
  • snooop
    snooop Registered Posts: 18 New contributor 🐸
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    It does as the net asset formula is fixed asset + current asset - current liabilities
  • Londina
    Londina Registered Posts: 814 Epic contributor 🐘
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    I've found in the search an answer from Sandy Hood about it, hope it helps!
    SandyHood wrote: »
    There are many gearing ratios
    The 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
  • Londina
    Londina Registered Posts: 814 Epic contributor 🐘
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    ops, it doesn't show properly! here the link! http://forums.aat.org.uk/showthread.php?t=20910

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