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Which of the following is most likely to result in company’s financial gearing being high?
a) low taxable profit
b) low tax rates
c) inexpensive share issue cost
d) intangible assets being a low proportion of total assetsSir correct ans is D but please can you explain me why
Intangible assets are likely to be ‘home-grown’ rather than purchased, so they won’t have borrowed money to buy them.
A low proportion of intangibles means a high proportion of tangible assets. They don’t have to have borrowed money to buy them, but they might well have done, so of the four choices this is the most likely reason for higher gearing.
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