Gearing Flashcards
1
Q
What is gearing
A
How much debt a business has
2
Q
Equation for gearing
A
Non current liabilities / total equity + NCL X 100
3
Q
What is considered highly geared
A
• over 50%
= interest rates have to be payed
= high geared & low liquidity = risky
4
Q
What is considered low gearing
A
Lower than 25%
- lack of ambition = risk adverse
5
Q
Two benefits for low gearing
A
- business is financed by shareholders = optional dividend payments
- no risk of increasing interest rates
6
Q
Benefits of high gearing
A
- ## business may have few shareholders = can regain decision making power
7
Q
Two ways to improve increasing gearing
A
- focus on growth ( ^ revenue, R&D, advertising)
- borrow money to cover short term debts
8
Q
Two ways to improve reducing gearing
A
- Repay loans
- issue more ordinary shares
