Gearing ratios

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Understanding financial data provides historical insight in turn possible strategies to correct or enhance future business results. http://bit.ly/TXNDm6

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Gearing ratios

  1. 1. Gearing RatiosFood Beverage Manager
  2. 2. DEBT RATIODebt ratio = Long-term debt / Capital employed(net assets) Measures the extent to which borrowed funds have been used to finance the company’s net assets.  The more long-term debt the higher is the gearing & the greater the risk incurred.  Gearing is generally considered to be high above 1:1 Page 2
  3. 3. DEBT TO-EQUITY RATIODebt-to-ratio = Long-term debt / Share capital  Measures the funds provided by long term creditors against the funds provided by shareholders. Page 3
  4. 4. INTEREST COVERInterest cover = Profit before interest & tax /Interest payable. Indicates the ability of company to meet its annual interest costs.  The higher the ratio the less risk is involved, as the interest begin paid becomes a smaller proportion of the profit generated. Page 4
  5. 5. STOCK MARKET RATIOSEarning per share = Profit after tax / No. ofordinary share issue Shows the after-tax earning generated tor each ordinary share.  High earnings per share can encourage new investors and promote investor loyalty. Page 5
  6. 6. PRICE / EARNINGSPrice – earnings = Market price per share /Earnings per share Shows the esteem in which the market holds the company.  The higher the ratio the more popular the share. Page 6
  7. 7. NET DIVIDEND YIELDNet dividend yield = Dividend per share /Market price per share  Indicates the dividend rate of returns to ordinary shareholders. Page 7
  8. 8. DIVIDENT COVERDividend cover = Earnings per share / Dividend pershare ORProfit to pay ordinary dividends / Ordinary dividends Measures the extent to which the company pays dividends from earnings. High dividend cover is healthy provided that investors judge the grow dividend on ordinary share to be adequate. Low dividend cover may indicate that gross dividends to ordinary shares have been set too high. Page 8
  9. 9. Maximise sales Page 9

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