CIMA BA3 · Chapter 13 · Question 6 of 10
A company has long-term loans of $90,000 and equity of $210,000. What is its gearing ratio, measured as debt / (debt + equity)?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) 30%
Explanation
Gearing = debt / (debt + equity) = $90,000 / ($90,000 + $210,000) = $90,000 / $300,000 = 30%. Measured as debt / equity it would be 42.9%, so the method used must always be stated.
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