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john moffat
can u plx xplain me
Q a companys gearing ratio would rise if1. a decrese in long ter loans is less than a decresae in shareholders funds
2. a decrese in long term loan is more than a decrese in shareholders funds
3. interst rates fall
4 intrst rate roseanswer is 1
bt i cnt undrstnd y(In future please use the F3 Ask the Tutor Forum if you want me to answer – I cannot always read every post in the general forum)
For this sort of question I always have to make up a few quick numbers for myself.
Suppose that at the moment shareholders funds are 3000 and long term loans are 1000.
Then suppose that shareholder funds fall by 600 (20%) and long term loans fall by 100 (10%). (So fall in loans is less than fall in sh/holders funds)
Calculate the gearing ratio before and after, and see what happens 🙂
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