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while we calculate gearing ratio formula is debt/equity+debt x 100
i want to know that do we include reserves , accumulated profit in calculation of equity along with share capital
also capital employed is found out by total equity + long term debt……….in that total equity too do we include reserves or accumulated profit.
another formula given in kaplan to calculate capital empoyed is total asset – cu. liabilities;
in that case reserves might get included in capital employed calculationwhat do you mean that does in calculation of equity and capital employed we include reserves or accumulated profits?
ryan32: please do not answer in this forum because it is Ask the Tutor and you are not the tutor 🙂
johnpinto: accumulated profits (or retained earnings) are a reserve. They are included in the calculation of total equity. Equity = share capital plus reserves.
Equity plus non-current liabilities is always equal to total assets less current liabilities.
If you watch my free lecture on financial performance measurement and look at the Statement of Financial Position in the example used from the free lecture notes, then you will see what I mean.
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