4. Financing Ratios (11-13)
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7 Terms
1
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What is gearing
Measures the proportion of capital financed through long-term debt
2
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What does high gearing suggest
Higher financial risk
Interest payments must be met
Borrowings must be repaid
3
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What is the gearing formula
Non-current liabilities / capital employed x 100
4
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Formula for capital employed (when used in gearing ratio)
Share capital + reserves + long term interest bearing debt
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What is the formula for Debt/Equity Ratio
Non-current liabilities / Equity x 100
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What is Interest cover
Measures how easily a company can pay interest on its debt from its operating profits - low interest cover signals high short term financial risk
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Formula for Interest cover
Operating profit / Interest payable
Note 
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