Financial ratio's - Financial gearing

4 important questions on Financial ratio's - Financial gearing

There are two ratios that are used for assessing financial gearing, which two ratios are these?

  • Gearing ratio
  • Interest cover ratio

What does the gearing ratio measures?

The contribution of long-term lenders to the long-term capital structure of a business

What is the formula for the gearing ratio?

Gearing ratio = Long-term (non-current) liabilities / (share capital + reserves + long-term (non-current) liabilities x100
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What does the interest cover ratio measures?

The amount of operating profit available to cover interest payable

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