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Hey hi team,
Good evening!Can you please confirm that do ‘prior charge capital’ include short-term debt also?
and
when we calculate ‘Equity’ do we need to include Profit & loss also?Thanks
SahilPrior-charge capital does not include short-term debt (unless there is the stated intention that it should remain in the long term).
With regard to ‘equity’ it depends what it is you are doing. If you are asked to calculate the gearing ratio using book values, then equity is share capital + reserves. If you are asked to calculate the gearing ratio using market values, then equity is just the market value of the shares.
I explain this (and explain why it is the case) in my free lectures. The lectures are a complete free course for Paper FM and cover everything needed to be able to pass the exam well.
(In future, if you want me to answer then ask in the Ask the Tutor Forum – this forum is for students to help each other 🙂 )
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