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Question
Which ratios would you not use to assess the capital gearing of an enterprise?
Which ratios would you not use to assess the capital gearing of an enterprise?
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Solution
The correct option is D Assets turnover ratio
Capital gearing means the amount of debt the company has in relation to its equity/assets. Whereas assets turnover ratio is calculated by dividing net sales by assets hence, cannot be used to asses capital gearing of the enterprise. Debt ratio, debt to equity ratio and long term debt to assets ratio all of them signify the relationship between debt and equity and hence can be used to asses capital gearing.
Capital gearing means the amount of debt the company has in relation to its equity/assets. Whereas assets turnover ratio is calculated by dividing net sales by assets hence, cannot be used to asses capital gearing of the enterprise. Debt ratio, debt to equity ratio and long term debt to assets ratio all of them signify the relationship between debt and equity and hence can be used to asses capital gearing.
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