[amp_mcq option1=”Long-term debt + Preference capital\/Net worth” option2=”Long-term debt\/Equity capital” option3=”Long-term debt\/Preference capital” option4=”Long-term debt\/Equity capital + Preference capital” correct=”option2″]<\/p>\n
The correct answer is: B. Long-term debt\/Equity capital<\/strong><\/p>\n Gearing ratio is a measure of a company’s financial leverage. It is calculated by dividing the company’s long-term debt by its equity capital. A high gearing ratio indicates that the company is using a lot of debt to finance its operations. This can be risky, as it means that the company is more vulnerable to changes in interest rates and economic conditions. However, it can also be beneficial, as it can allow the company to grow more quickly.<\/p>\n Option A is incorrect because it includes preference capital in the denominator. Preference capital is a type of equity capital that has a fixed dividend rate. This means that it is not as risky as debt, and should not be included in the gearing ratio.<\/p>\n Option C is incorrect because it includes only long-term debt in the numerator. The gearing ratio should include all of the company’s debt, not just long-term debt.<\/p>\n Option D is incorrect because it includes both equity capital and preference capital in the denominator. As explained above, preference capital should not be included in the gearing ratio.<\/p>\n","protected":false},"excerpt":{"rendered":" [amp_mcq option1=”Long-term debt + Preference capital\/Net worth” option2=”Long-term debt\/Equity capital” option3=”Long-term debt\/Preference capital” option4=”Long-term debt\/Equity capital + Preference capital” correct=”option2″]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[85],"tags":[],"class_list":["post-55630","post","type-post","status-publish","format-standard","hentry","category-accounting","no-featured-image-padding"],"yoast_head":"\n