GK
ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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assets and capital
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loans and capital
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debentures and share capital
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equity shareholders fund and long term borrowed funds
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Detailed explanation-1: -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.
Detailed explanation-2: -The term ‘capital gearing’ refers to the relationship between equity capital (equity shares plus reserves) and long-term debt. It may be planned or historical, the latter describing a state of affairs where the capital structure has evolved over a period of time, but not necessarily in the most advantageous way.
Detailed explanation-3: -The gearing ratio is also concerned with liquidity. However, it focuses on the long-term financial stability of a business. Gearing (otherwise known as “leverage") measures the proportion of assets invested in a business that are financed by long-term borrowing.