Gearing (AQA A-Level Business): Quizzes
📚Quizzes
Practise the questions
10 questions from this quiz
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Practise the questions
10 questions from this quiz
What does the gearing ratio measure in a business?
What does the gearing ratio measure in a business?
Proportion of funding from debt vs equity
A firm has non-current liabilities of £300k and total equity of £700k. What is the gearing?
A firm has non-current liabilities of £300k and total equity of £700k. What is the gearing?
30%
A company has gearing of 65%. How would this be classified?
A company has gearing of 65%. How would this be classified?
High-geared
What advantage does a low-geared business (11%) have during difficult trading periods?
What advantage does a low-geared business (11%) have during difficult trading periods?
Can reduce dividends vs defaulting on loans
Why might a business choose to be high-geared (72%) rather than sell more shares?
Why might a business choose to be high-geared (72%) rather than sell more shares?
Directors wish to retain ownership control
How does high gearing affect vulnerability to interest rate changes?
How does high gearing affect vulnerability to interest rate changes?
More vulnerable - must pay more interest
What is a key reward of high gearing for a growing business?
What is a key reward of high gearing for a growing business?
Extra funds to invest in expansion projects
What is the main risk of high gearing for a business?
What is the main risk of high gearing for a business?
Loan repayments are mandatory always
In liquidation, who gets paid first from a high-geared company's assets?
In liquidation, who gets paid first from a high-geared company's assets?
Lenders with secured loans
How do valuable assets affect a business's borrowing capacity?
How do valuable assets affect a business's borrowing capacity?
Increase it - assets serve as security