Skip to main content

Gearing - numerical questions

S:\TripleA\Design\icons\small\question.gif

Question 1

Examine the data below, which is extracted from the accounts of Forlorn Holdings plc. (Units; $k)

Year 2005 2006 2007 2008 2009 2010 2011
Overdrafts 100 120 140 100 80 100 120
Short-term loans 200 150 200 250 250 300 250
Debtors 300
Long-term loans 200 200 150 200 250 300 400
Share capital 500 500 500 500 550 550 550
Revaluation reserve 200 200 200 200 200 250 250
Retained profits 200 220 200 250 270 300 300


Calculate the gearing ratio for each of the years, and then try to explain what may be behind the changes.