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Capital Structure and Financial Ratios Financial Gearing (part a)
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Master John, as far as I’m concerned, the figure of equity thas is used for the calculation of the financial leverage includes retained earnings as well. In example 2 of course, the BS couldn’t balance if there were retained earnings as well, so I guess Lavetal doesn’t have any.
However, if there were retained earnings as well, should we include these in the “equity” figure?
Hi Sir John
Can u pls tell whether we take reserves like retained earnings or revaluation reserve as equity in the calculations?
Thanks
There are two ways of looking at gearing depending on what information is available.
The best way would be to use the market values of debt and of equity – if you have these then reserves are not relevant (because the market value is already taking these into account).
If you do not have market values then it means we have to use balance sheet values. In this case you take the total shareholders funds (share capital plus all reserves).
the videos are very slow
Same question i had , but if you listen to this with full focus you will realize that john has indeed made operational gearing concept clear but has stated that he will not be doing numbers on it as perhaps there is no fixed way of doing so.
Operational gearing , btw, is a measure of variable costs to fixed costs.Hope this helps a little.
Where is the discussion bit for financial gearing and operating gearing.I recon it’s supposed to be at the beginning of this lecture, which might have been cut off. If that is not available, pls make that available with the old lectures to cover it a bit.
I have the same question… where is the discussion on financial and operational gearing..? thank you
There is a little bit from about 15 minutes onwards. I will record a bit more when I have the time, but if you look at the example in the course notes then it should make sense without a lecture.
Most probably, its your internet connection. It works fine because these lectures are around 30MB only
can any tell me wat happens to video
:( olders videos are fine with me ..! any solutions ??
lecture all videos gettin to much time to download ..! ..its took me wait so long almost 1 hour to watch this video ..!