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Gearing ratio calculation

This topic has 4 replies, 3 voices, and was last updated 10 years ago by Ken Garrett.

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December 3, 2014 at 9:28 pm #217095
Tufnell
Member
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Gearing ratio formula should be as (a) Debt/Equity (b) Debt/(Debt+equity)
And I understand that equity here should be included share capital, share premium, accumulated profits.
However, from examiner’s answer for Joe Swift Transport (06/10) and EcoCar (06/11), gearing is calculated as Long term borrowing/SHARE CAPITAL only.
Should I consider retained earnings when I calculate gearing in the exam?
December 3, 2014 at 10:32 pm #217110
Ken Garrett
Keymaster
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Equity = share capital + reserves + share premium
December 3, 2014 at 10:39 pm #217113
Tufnell
Member
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Many thanks for your prompt reply.
December 4, 2014 at 11:02 am #217278
shadoweyescat
Member
- Topics: 3
- Replies: 9
hi,
should we add preference share if any in ‘shareholders’ equity’?
thanks
December 4, 2014 at 2:04 pm #217337
Ken Garrett
Keymaster
- Topics: 10
- Replies: 10544
There are arguments both ways, but usually for gearing calculations, preference shares are included with debt. The main thing is to be consistent from year to year.
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