CIPS L4M4 Exam - Topic 1 Question 32 Discussion

Actual exam question for CIPS's L4M4 exam

Question #: 32
Topic #: 1

[All L4M4 Questions]

Which of the following would you use to work out a company's gearing ratio? Select TWO.

0current liabilities

Anet profit

Bshareholder equity

Clong term debt

Dgross sales

Show Suggested Answer

Suggested Answer: A, C

Gearing measures how much of an organisation's long-term funding is made up of long term debt and loans. Therefore the correct answers are 'shareholder equity' and 'long term debt'.

There are many question about financial ratios that can come up on the exam. If you're unsure on them I suggest doing further reading outside of the study guide as this will help. I like this youtube video (I'm not associated with the makers of this video but think they're really good at explaining things to beginners) Gearing Ratio explained (youtube.com)

by Matilda at Mar 23, 2025, 08:37 PM

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Melvin

5 months ago

I thought net profit was part of it, but I guess not?

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Marylyn

5 months ago

Totally agree, those are the right ones!

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Geraldine

6 months ago

Wait, why not include current liabilities? Seems off.

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Benton

6 months ago

Long term debt and shareholder equity? Really? Sounds too simple.

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Nichelle

6 months ago

You need long term debt and shareholder equity for gearing ratio.

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Maynard

6 months ago

I think gearing ratio is about how much debt a company has compared to its equity, so long term debt and shareholder equity seem right to me.

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Reuben

7 months ago

I feel like net profit might be involved somehow, but I can't recall if it's directly related to gearing. I should probably stick with long term debt for sure.

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Casie

7 months ago

I remember practicing a similar question, and I think long term debt is definitely one of the answers. Not sure about the second one though.

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Nickolas

7 months ago

I think the gearing ratio is related to debt, so I might go with long term debt and shareholder equity, but I'm not entirely sure.

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Queen

7 months ago

Ah, I remember learning about the gearing ratio in my finance class. It's the ratio of a company's debt to its equity. So I'll need to find the long-term debt and shareholder equity numbers to calculate it.

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Jame

7 months ago

I'm a bit unsure about this one. I know the gearing ratio has something to do with the company's financing, but I'm not sure exactly which items I should be looking at. Maybe I'll start with the debt-related figures and see if that helps.

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Barb

8 months ago

Okay, this seems straightforward. The gearing ratio is calculated using debt and equity, so I'll need to find the long-term debt and shareholder equity figures.

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Georgeanna

8 months ago

Hmm, the gearing ratio is all about the company's debt levels, so I'll need to look at the debt-related items on the balance sheet. I think current liabilities and long-term debt would be the key components.

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