A company's non-current liabilities (loan notes) are £150,000 and its equity is £350,000. What is its gearing using debt ÷ (debt + equity)?
Answer and explanation
Correct answer: B. 30.0%
- Step 1: Total capital = debt + equity = £150,000 + £350,000 = £500,000.
- Step 2: Gearing = £150,000 ÷ £500,000 = 30.0%.
Answer
30.0%.
Why not the others: 42.9%: This is debt ÷ equity (150 ÷ 350), a different gearing measure from the one asked for. 70.0%: This is the equity share of total capital, not debt. 23.1%: This uses an incorrect denominator that adds debt to both parts of the capital.
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