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Can you please explain the ratio for gearing as i took a test which i bought from ACCA online and i used the ratio which is on your notes but the answer was incorrect. The explanation to the test answer was strange so i went online to double check and that got to my head as its different online too.
So the test question said
Z Co has long-term loan liabilities of $324000 & Shareholders’ funds of $402000
What is Z Co’s capital gearing ratio?
19.4%, 44.6%, 55.4%, 124.1%
Answer:44.6%
Explanation: Gearing = Prior charge capital (Long – term debt)/Prior Charge Capital + Shareholder equity (32400/324000+402000 = 44.6%)Online i found it as
Capital Gearing Ratio = Equity Share Capital / Fixed Interest Bearing Funds]On your notes it says
Non current liabilites/Share Capital & Reserves
Please help me understand 🙂
Regards
There are two ways in which gearing can be measured.
Either debt (non-current liabilities) / equity (share capital + reserves)
or: debt / (equity + debt)
The exam will make it clear which of the two measures that they want.
(It is never measured as equity / debt )
You should watch the free lectures on this 🙂
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