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
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
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