Question

With the information given below, what is the Capital Gearing ratio of the firm? 

Stockholders’ equity = 500,000

Total Long term debt =60,000

Bonds Payable =40,000

A 14 Correct Answer Incorrect Answer
B 9 Correct Answer Incorrect Answer
C 5 Correct Answer Incorrect Answer
D 25 Correct Answer Incorrect Answer
E 10 Correct Answer Incorrect Answer

Solution

Capital gearing is the degree to which a company acquires assets or to which it funds its ongoing operations with long- or short-term debt. Capital gearing will differ between companies and industries, and will often change over time. Capital gearing is also known as "financial leverage". Capital Gearing ratio = Shareholder’s equity/Fixed cost bearing funds = 500,000/(60,000+40,000)= 5

Practice Next
×
×