To compute gearing ratio, divide?

Assessment: JAMB UTME - Principles of Accounts - 1998 Subject: Financial Accounting

Question 1 Report

To compute gearing ratio, divide?
Answer Details
Gearing ratio is a financial ratio that measures the proportion of a company's capital that is financed through debt. To compute the gearing ratio, you need to divide the long-term debts of the company by its equity capital. This ratio helps investors and analysts understand the level of financial risk associated with the company's capital structure, and how much of the company's operations are financed through debt. The higher the gearing ratio, the more debt the company has relative to its equity capital, which may increase financial risk in the event of economic downturns or other adverse events.
Read lesson note on Nature And Significance Of Accounting (JAMB)
Read lesson note on Introduction To Company Accounts (JAMB)
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