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Dear Sirs,
In your note chapter 4, example 1 regarding gearing ratio in your answer.
In page 13, the gearing ratio should be calculated by long term debt divided by long term debt plus shareholders funds.
However, when I checked the answer in page 139, the gearing is only calculated by long term debt divided by shareholders’ funds only. Why no need to be divided by long term debts plus shareholders’ funds?
Thanks
You should know from earlier papers (F2,F3, F5 and F9) that there are two ways of expressing the gearing ratio.
It is either expressed as long-term debt / long-term debt + shareholder funds,
or alternatively as long-term debt / shareholders funds.Unless the examiner specifies how he/she wants it to be measured, then either calculation will get full marks.
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