Sir,
In Debt-Equity ratio.
Should we consider Bank loan under debt?
Or must bank loan be considered only
In prior charge capital.?
Ask the Tutor ACCA FM
Debt-Equity
4y ago#1Debt is all long term borrowings, including bank loans.
Bank overdrafts are not included because they are short-term borrowings.
Okay sir..And what about equity?
Will it include ordinary share+Retained
+Reserves?
Also should ordinary share be at par value
Or current market value?
4y ago#3As I explain in my free lectures, if you are asked to calculate the gearing based on the book values then the value of equity is the share capital plus the reserves (and retained earnings is one of the reserves).
If you are asked to calculate the gearing based on market values (as is more sensible) then the value of equity is simply the market value of the equity.
Again, I do explain this and the reasons, in my free lectures.
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