Financial Gearing Flashcards
What does the gearing ratio measure
The contribution of long term lenders to the long term capital structure of a business / the proportion of long term debt to total capital
How is the gearing ratio expressed
As a percentage
What is the equation for the gearing ratio
Long term (non current) liabilities / share capital + reserves +long term (non current) liabilities x100
What does the interest cover ratio compare
The amount of operating profit to the interest payable
How is the interest cover ratio expressed
As a number of times
What does the interest ratio cover measure
The number of timed the interest could have been paid out of profits
What is the equation for the interest cover ratio
Interest cover = operating profit / interest payable
What are the two types of financial gearing ratios
Interest cover ratio and the gearing ratio
