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Is there any reason to use (debt/equity) formula for calculating gearing ratio rather than (debt/(debt+equity) formula if the question doesn’t specify to use the (debt/equity) formula?
I have come across a past question (Mawair Co(Sept/Dec17)) in which this formula was used but the question didn’t specify using any specific formula
The only note in the question was “For calculation purposes, all loan notes should be treated as debt”No either formula can be used but you must use the same one when comparing year-on-ywar or by company.
Thanks
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