A gearing ratio of above 50% suggests:
A) The company is profitable
B) The company is over-reliant on borrowing
C) The company is financed mostly by equity
D) The company is almost bankrupt

Question

Quizplus · Accepted Answer

A gearing ratio above 50% suggests that the company is over-reliant on borrowing, meaning it has a higher level of debt compared to equity. This can indicate a higher financial risk as the company may struggle to meet debt obligations or have difficulty obtaining further financing in the future. Being profitable or financed mostly by equity would not necessarily result in a high gearing ratio, and being almost bankrupt would imply a much more severe financial situation.

A Gearing Ratio of Above 50% Suggests