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pls solve my querry!!

sunny (Audit Assistant) (55 Points)

24 January 2009

pls tell me what is basic difference between debt equity ratio & Capital gearing ratio?>

pls help me m not taking coaching from anywhere m doing self study n m having this problem....thanx in advance.....

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2 Replies

CA Chirag Shah (Chartered Accountant) (44 Points)
Replied 05 March 2009

Debt Equity RAtio : A measure of a company's financial leverage calculated by dividing its total liabilities by stockholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets.

Note: Sometimes only interest-bearing, long-term debt is used instead of total liabilities in the calculation.

Also known as the Personal Debt/Equity Ratio, this ratio can be applied to personal financial statements as well as companies'

Capital Gearing Ratio :The term "capital gearing" or "leverage" normally refers to the proportion of relationship between equity share capital including reserves and surpluses to preference share capital and other fixed interest bearing funds or loans. In other words it is the proportion between the fixed interest or dividend bearing funds and non fixed interest or dividend bearing funds. Equity share capital includes equity share capital and all reserves and surpluses items that belong to shareholders. Fixed interest bearing funds includes debentures, preference share capital and other long-term loans.

Formula of capital gearing ratio:

[Capital Gearing Ratio = Equity Share Capital / Fixed Interest Bearing Funds]

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Disha (Job) (34 Points)
Replied 16 August 2009

Originally posted by :CA Chirag Shah
"	Debt Equity RAtio : A measure of a company's financial leverage calculated by dividing its total liabilities by stockholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets. Note: Sometimes only interest-bearing, long-term debt is used instead of total liabilities in the calculation. Also known as the Personal Debt/Equity Ratio, this ratio can be applied to personal financial statements as well as companies' Capital Gearing Ratio :The term "capital gearing" or "leverage" normally refers to the proportion of relationship between equity share capital including reserves and surpluses to preference share capital and other fixed interest bearing funds or loans. In other words it is the proportion between the fixed interest or dividend bearing funds and non fixed interest or dividend bearing funds. Equity share capital includes equity share capital and all reserves and surpluses items that belong to shareholders. Fixed interest bearing funds includes debentures, preference share capital and other long-term loans. Formula of capital gearing ratio: [Capital Gearing Ratio = Equity Share Capital / Fixed Interest Bearing Funds]	"