Gearing Ratio Flashcards
what is a gearing ratio
capital structure taio
as hearing ratio is a capital structure ratio what does it look at
structure of capital in bs
what does the gearing ratio show us
how much of firms capital employed is made up of NCL
What is the equation for gering ratio
NCL/CAPITAL EMPLOYED X 100
Where are NCL found
SOFP/ Balance sheet
how do you work out capital employed
total equity + NCl
How do you calcualte total equity
retained profit + share capital
where do you find equation for TE
SOFP/ balance sheet
If a higher % comes out of formula, explain what this measn
more leveraged
therefore
m sensitive to IR increase
so price of renting money increases
therefore costs of business increases
why would a bs be sensitive to IR increases
NCL like loans mortfages have IR attached
what is a vital component to expanding a bs
debt/LT
explain why debt is a vital component to expanding a bs
athough we want/have access to sc this isnt the only thing we want to use
as want to keep SH happy , ehyll be thinking why only using SC
could make bs ppear as if not qualified for loan TF not very strong and not something they wanna invest in
50% or more shows a
highly geared bs
what does it mean if a bs highly geared
@ risk
if IR increases
or
have loew/inconsistent profits as
could lead to a liquidity issue
