Gearing 2
There is an alternative gearing ratio, we can call it the Gearing Ratio II.
The formula for this ratio is:
| Gearing 2 | = | Long Term Liabilities |
| Long Term Liabilities + Equity Shareholders' Funds |
Let's just get on with this one. Gather the necessary data from both of our businesses, Carphone Warehouse and Vodafone and calculate this ratio for them.
The calculations:
| Gearing II Ratio for the Carphone Warehouse | ||
|---|---|---|
| 31 March 2001 | 14,107: 436,758 + 14,107 | 0.031: 1 |
| 25 March 2000 | 21,033: 44,190 + 21,033 | 0.322: 1 |
| Gearing II Ratio for Vodafone | ||
|---|---|---|
| 31 March 2002 | 13,118: 130,573 + 13,118 | 0.091: 1 |
| 31 March 2001 | 11,235: 145,007 + 11,235 | 0.072: 1 |
In the case of both the Carphone Warehouse and Vodafone, these ratios are, as we should expect, smaller than Gearing 1 and they are still, therefore, insignificant by the end of the two years we are analysing here.
You can now try these additional questions.
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