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Hi, need to submit a 250 words paper on the topic Financial Ratio Analysis. GEARING RATIOGearing is an essential element which helps in deciding upon the balance between equity and debt financing. The
Hi, need to submit a 250 words paper on the topic Financial Ratio Analysis. GEARING RATIO
Gearing is an essential element which helps in deciding upon the balance between equity and debt financing. The higher the level of gearing, the higher would be the return required from the loan provider/bank as they would be exposed to greater risk and the susceptibility that their money might go unpaid if the company goes bankrupt (Vandyck, 2006).
Debt/Equity Ratio = Total Debts: Total Equity
This ratio gives the proportion of the Debt and Equity acquired by any company to finance its operations.
Operating Margin
Operating margin is a measure of the profitability of a company. This ratio analyzes a company’s ability to pay off the operating expenses and the costs of goods sold by a company with respect to its revenue.
Interest Cover
Interest cover is a measure of financial risk i.e. it shows a company ability to pay off its interest obligation on any borrowings that it has made with the profit that it makes in that period (Morley, 1984).
