Page 297 - FR Integrated Workbook 2018-19
P. 297
Interpretation of financial statements
Long-term financial stability
3.1 Gearing: calculation
Debt
(Debt + Equity) × 100%
Debt includes all long-term borrowings, e.g. loan notes, redeemable preference
shares.
Equity includes all elements of equity, e.g. share capital, reserves, non-controlling
interest.
3.2 Alternative gearing measure – debt: equity: calculation
Debt
Equity
3.3 High and low gearing
High gearing Low gearing
Large proportion of Scope to increase
fixed-return capital borrowings for potential
Greater risk of new projects
insolvency Borrow more easily
Proportionately greater Perceived as lower risk
returns to shareholders
if profits are growing
291
