S
Question 3 of 5
A plc's gearing has risen from 32% to 61% in two years. Before you judge whether
that's a problem — what would you need to know about the business first?
ET
Whether the borrowing funded assets that generate a return, and whether operating
profit still comfortably covers the interest.
S
Good — that's the interest-cover point most students miss. Now try it as a
9-marker: "Analyse the impact of a rising gearing ratio on a plc's stakeholders."
ET
Higher gearing means more of the operating profit is committed to interest payments,
so shareholders face a squeeze on dividends and…