ACCA FA · Chapter 14 · Question 5 of 10
A company has equity of $400,000 and non-current borrowings of $200,000. What is its gearing, calculated as debt / (debt + equity)?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) 33.3%
Explanation
Gearing = debt / (debt + equity) = $200,000 / ($200,000 + $400,000) = $200,000 / $600,000 = 33.3%. Calculated as debt / equity, the figure would be 50%, so it is important to check which definition is required.
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