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Which of the following would you use to work out a company's gearing ratio? Select TWO.
0current liabilities
Suggested Answer: A, C
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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)
24 comments · newest first
ME
Melvin
11 months ago
I thought net profit was part of it, but I guess not?
MA
Marylyn
11 months ago
Totally agree, those are the right ones!
GE
Geraldine
11 months ago
Wait, why not include current liabilities? Seems off.
BE
Benton
11 months ago
Long term debt and shareholder equity? Really? Sounds too simple.
NI
Nichelle
11 months ago
You need long term debt and shareholder equity for gearing ratio.
MA
Maynard
12 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.
RE
Reuben
12 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.
CA
Casie
1 year 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.
NI
Nickolas
1 year 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.
QU
Queen
1 year 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.
JA
Jame
1 year 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.
BA
Barb
1 year 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.
GE
Georgeanna
1 year 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.
KR
Kristine
2 years 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!
MA
Malcolm
2 years ago
I'm not sure about the answer, but I think D) gross sales might also be relevant.
MA
Mable
2 years ago
Haha, gross sales? Really? That's about as relevant to gearing as a penguin is to skydiving.
GE
Geoffrey
2 years ago
B) shareholder equity
JA
Jamal
2 years ago
A) net profit
TA
Tamra
2 years ago
I agree with Viola, but I also think B) shareholder equity is important for the gearing ratio.
VI
Viola
2 years ago
I think the answer is C) long term debt.
CH
Chau
2 years ago
Hmm, I think the gearing ratio would involve long-term debt and shareholder equity. Those seem like the key components to me.
CH
Chau
2 years ago
Marguerita: It's important to consider both when analyzing a company's financial health.
MA
Marguerita
2 years ago
User 2: Definitely, those two factors play a crucial role in determining a company's financial leverage.
JA
James
2 years ago
User 1: I agree, I think long term debt and shareholder equity are the key components for calculating the gearing ratio.