Financial Ratio Analysis

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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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