CIPS Exam L4M4 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

Limited Time Offer

25%

Off

Get Premium L4M4 Questions as Interactive Web-Based Practice Test or PDF

Contribute your Thoughts:

Submit Cancel

Kristine

2 months ago

Okay, let's see... Current liabilities and long-term debt, that's what I'd use to calculate the gearing ratio. Gotta love those financial ratios!

upvoted 0 times

...

Malcolm

3 months ago

I'm not sure about the answer, but I think D) gross sales might also be relevant.

upvoted 0 times

...

3 months ago

Hmm, I think the gearing ratio would involve long-term debt and shareholder equity. Those seem like the key components to me.

upvoted 0 times

Chau

2 months ago

Marguerita: It's important to consider both when analyzing a company's financial health.

upvoted 0 times

...

Marguerita

2 months ago

User 2: Definitely, those two factors play a crucial role in determining a company's financial leverage.

upvoted 0 times

...

James

2 months ago

User 1: I agree, I think long term debt and shareholder equity are the key components for calculating the gearing ratio.

upvoted 0 times

...