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Can I use any of the following formula for gearing ratio:-
1. Debt/Equity
2. Debt/ (Debt + Equity)Question no. 2
What all should be included in the amount of Debt (Non current Liability)?
In question Question 2, Dec 18, they have also added the amount of provision which is no where related to Finance capital for the co.
Should I only consider the “Long term Loan finance” as debt figure in my formula or should i take the total amount of “Non Current Liability” as debt figure in my formula?Q1: You can use either – obviously using whichever you choose also for comparative year(s).
Q2: You could validly use only non-current interest-bearing debt {and even though an overdraft is classified as non-current, it could be included also if it appears to be of a permanent nature). Or it’s fine to include long-term provisions too (as claims on the company to be settled in more than one year).
As long as clearly stated and consistently used it doesn’t matter.
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