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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › High K (Sept / Dec 2017)
Hi, may i know how the examiner answer derive gearing of 37.6 , 36.8 , 32.5 ???
Also, sir, I don’t understand for the gearing part discussion:
The gearing level in 2016 is below the 2014 level, but it would have fallen further had a fall in debt not been partly matched by a fall in High K Co’s share price. It seems surprising that High K Co’s debt levels fell during 2016 at a time of lower interest rates. Possibly lenders were (rightly) sceptical about whether the cut in central bank lending rate would be sustained and limited their fixed rate lending.
could u please explain? thank you very much.
The gearing has been calculated as the debt / (debt + equity), using the market value of the equity.
A fall in the market value of equity will increase the gearing and so if the share price had not fallen then the gearing would have fallen even more.