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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA SBL Exams › Gearing ratio calculation
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?
Equity = share capital + reserves + share premium
Many thanks for your prompt reply.
hi,
should we add preference share if any in ‘shareholders’ equity’?
thanks
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.