OT Notes Chap 4 Example 1 (Gearing – book value)

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March 17, 2017 at 12:46 pm #378550
kimhel
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How to calculate the gearing – book value for year 1 (Ans: 50%) and year 2 (Ans: 34.6%)?

I am using the formula [ Debt / (Debt + Equity) ].
By using this formula, I am able to get the answer for year 3 and 4 but not year 1 and 2.
March 17, 2017 at 2:57 pm #378557
John Moffat
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Gearing can be calculated either as debt/(debt+equity) or as debt/equity.
Obviously they give different answers, but either way is accepted (unless the examiner specifies which way he wants it to be calculated).

The answer to this example has calculated as debt/equity for all four years.
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