any accountant can define net gearing ?

[madmansg]

how is it different from debt/equity ration ?

 

[Ah Guan]

"Ratio"


...

 

[Zombie]

how is it different from debt/equity ration ?

A good accountant's reply:

"How you like it to be?"

 

[chinkangkor]

I make a guess:

Minus off the cash and bank balances from the debt portion and divide it by equity.

 

[kuntakinte]

Darned !!! He/She must be one creative accountant !!

IPC, Xpress Print, and including Temasek may require such talented and creative accountant.

A good accountant's reply:

"How you like it to be?"

 

[Zombie]

how is it different from debt/equity ration ?

debt / equity =
how much external financing (note: only LT debts) is sourced, for every dollar of shareholders' interests ie focus on financing risk

gearing = all debt / (all debt + equity) =
what proportion of total assets base, can be subjected to claims in priority over the shareholders

net gearing = all debt less cash / (all debt + equity)
same as above, but focus on the portion of priority claims that company needs to raise extra cash (from its current assets base) to match


but sometimes people also call debt/equity as gearing ratio

 

[madmansg]

debt / equity =
how much external financing (note: only LT debts) is sourced, for every dollar of shareholders' interests ie focus on financing risk

gearing = all debt / (all debt + equity) =
what proportion of total assets base, can be subjected to claims in priority over the shareholders

net gearing = all debt less cash / (all debt + equity)
same as above, but focus on the portion of priority claims that company needs to raise extra cash (from its current assets base) to match


but sometimes people also call debt/equity as gearing ratio

ok. that is good. HOw about what level of net gearing is bad ? Ferro china got high gearing so went bust !

 

[Zombie]

ok. that is good. HOw about what level of net gearing is bad ? Ferro china got high gearing so went bust !

No hard and fast rule, I think. Some businesses can generate cash faster than the others, and they can afford higher gearing. When debt financing is cheap, higher gearing is possible too.

As long as the new operations (from the new funding) can generate enough cashflow to service the addtional debt commitments, then it is not harmful to increase gearing.

 

[2lanu]

It is not possible for stock to have 0 gearing after all there tend to a bit of outstanding debt to pay. I prefer stock that have low net gearing and fund their expansion using internal resources.

Though it may seem stupid in boom time but it alot safer and can sleep well at night.

 

[madmansg]

I only buy stock with negative net gearing in this enviroment.