Which of the following would increase a company's gearing ratio? A.repayment of a loan B.issue of...
Which of the following would increase a company's gearing ratio?
A.repayment of a loan
B.issue of new equity
C.issue of debt
D.none of the above
Homework Answers
Ans: ( C) Issue of debt
Explanation:
1) Gearing Ratio:
= Total Debt ÷ Total Equity
2) It measures how much proportion of fund is borrowed to its equity.
3) Option (a) repayment of loan would decrease the numerator and decrease the ratio.
4) Option ( b) issue of new equity would increase the denominator and this would lead to decrease in ratio.
5) Option ( c) issue of debt would increase the numerator and this would lead to increase in the ratio.
Hence ( c) is the correct choice.
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