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hi Sir,
1. when we calculate the gearing ratio, the formula is long term debt / shareholder fund OR long term debt / (shareholder fund + long term debt)?
2. do we need to include preference share (if question got preference share) in calculating the gearing ratio and also the market value of equity & debt?
3. when we calculate the market value of debt , does it including preference share and overdraft?
1. Either – both are used and either can be used in the exam (unless obviously the question specifies which one)
2. Yes – preference shares are treated as though they were debt.
3. Preference shares, yes; Overdrafts, normally no, unless the question suggests that they intend the overdraft to be long-term.
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