ENTREPRENEURIAL FINANCE
DEBT FINANCING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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If a company is described as highly geared, this means that
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A high proportion of capital is from equity
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There is no equity and loan capital in the business
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There are equal amounts of equity and loan in the business
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A high proportion of capital is from loans
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Explanation:
Detailed explanation-1: -It is also referred to as financial gearing or financial leverage. A company is said to have a high capital gearing if the company has a large debt as compared to its equity. For example, if a company is said to have a capital gearing of 3.0, it means that the company has debt thrice as much as its equity.
Detailed explanation-2: -What is Capital Gearing Ratio? Capital gearing ratio is the ratio between total equity and total debt; this is a specifically important metric when an analyst is trying to invest in a company and wants to compare whether the company is holding the right capital structure.
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