Gearing Formula? (1 Viewer)

[Shifty]

Ive been looking through my teachers notes, and some various textbooks and i couldnt help but notice the gearing formula was changing, so can someone please tell me what the gearing formula is?

 

[superbird]

Gearing Ratio = Total Liabilities/Total Assets

 

[Shifty]

and there is no other alternative?

 

[superbird]

ok theres two solvency formulas.
DEBT TO EQUITY (which is apprently the one we use and i confirmed this with hsc advice line): Total liabilities/Owner's Equity
GEARING OR EQUITY RATIO: Total Liabilities/Total Assets.

Usually in the HSC they will specifiy which one to use. i.e. what is the debt to equity ratio for business 1. In which case u will use total liabilties/owners equity.

 

[Lexi]

Some schools are taught Short Term Debt/Owners Equity, but this is wrong. As superbid said it is Total Debt/Equity x 100. (Ideally, anything less than 100% is ok.) This is the only Gearing ratio you need to know.

 

[cro_angel]

i have never heard of the total liabilities to total assets one.. and people from other schools i know havent heard of it
we use debt to equity which is total liabilities to total owners equity.. they wouldnt ask for any of the other gearing ratios because they arent even in textbooks
i tend to keep ratios as a ?:1 thing because you can always say for every $1 contributed by the owners an additional ? has been borrowed. this indicates a blah blah financial position and the business needs to blah blah.. thats how i tend to answer ratio questions
i only really keep NPR and GPR as a %

 

[Shifty]

Called advice line and pommy dude said use TL/OE