Gearing Ratios | Ratio Analysis | A level Accounting 9706

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Welcome to our comprehensive tutorial on gearing ratios, a crucial aspect of ratio analysis, designed specifically for Cambridge Accounts A2 Level students. In this chapter, we delve into the intricacies of interest in fixed cost capital, low gearing, high gearing, and income gearing ratios, providing a comprehensive understanding of their significance in financial analysis.

Gearing ratios offer valuable insights into a company's capital structure and financial risk. In this video, we explore the concept of interest in fixed cost capital, examining how companies utilize debt and equity to finance their operations and the implications for profitability and risk.

We then delve into the distinctions between low gearing and high gearing, elucidating the advantages and disadvantages of each approach in terms of financial stability and leverage. Through detailed examples and calculations, we illustrate how gearing ratios can vary across industries and companies, highlighting the importance of context in ratio analysis.

Furthermore, we discuss income gearing ratio, a key metric for assessing a company's ability to service its debt obligations from its operating profits. By analyzing real-world scenarios, we demonstrate how income gearing ratio can offer insights into a company's financial health and sustainability.

By the end of this video, we expect CAIE A2 Level Accounting students you'll have a solid understanding of gearing ratios related concepts in low gearing, high gearing, fixed cost capital and income gearing ratio.
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