Gearing ratio

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August 10, 2024 at 9:03 pm #709471
dangkhoa.nhhtd
Participant
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Hello tutor,

I do not understand why when a company does the following, the gearing ratio will reduce? As I think if numerator and denominator increase proportionately, the ratio should increase.

Thank you!

“‘Selling’ an asset under a sale and leaseback agreement”
August 17, 2024 at 8:37 am #709936
P2-D2
Keymaster
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Hi,

You need to work it with numbers to get the true impact. If we pretend that debt is currently 2 and equity 1, you have 2:1 as the gearing ratio. You can then adjust this for the sale and leaseback agreement.

Thanks
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