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Confusion on gearing ratio

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Confusion on gearing ratio

  • This topic has 0 replies, 1 voice, and was last updated 13 years ago by Cin.
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    Posts
  • June 13, 2012 at 6:46 am #53411
    Cin
    Member
    • Topics: 2
    • Replies: 2
    • ☆

    For gearing ratio, can you kindly advice on the followings?

    1) Should the formula be Long-Term debt/Total Equity or Long-Term debt/(Long-Term debt + Total Equity)? (Note: Sorry for this very stupid question but I’m more confused the more I work on the questions)

    2) Should the “Long-Term debt” on the numerator be replaced by “Total debt” that considers ALSO “Short-Term debt”?

    3) For “Total Equity”, is it that we always need to calculate “market capitalization amount”? Is it that we can use the Net Book Value only when there is NO shares?

    4) Are “Reserves” NEVER included in “Total Equity”?

    Thx very much ahead

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