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Hi Sir,
Good MorningIn the calculation of Financial Gearing (Dedt Equit), acordingly with your letures we use (Long Term Debt + Preference Share) divided by (Equit + Reservs).
My question is, when we must use the overdraft limit when we are calculating the financial gearing. We consider the overdraft limit equivalent to a long term borrowing with interest and we can apply it in the calculation?
Best Reagard
ETThere is no rule about this.
Usually it will be the overdraft itself (rather than the limit), but only if it is intended to be long term. (i.e. the intended level of long term borrowing – not the limit which could be completely different).However, unless the question is specific about the intentions regarding the overdraft (which is usually not the case) then you get full marks whether you include it or not (provided you discuss sensibly).
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